Tony Wray: Open the floodgates: set Britain's water free

The Business Interview: Deregulation is the answer to the water industry's challenges, Severn Trent's chief executive tells Sarah Arnott

Tony Wray is an unusual FTSE 100 chief executive. Not only does the boss of Severn Trent come down to the reception himself to pick me up, but we then talk in an anonymous meeting room because, like all his staff, Mr Wray has no office of his own. "I did have one once, but only for three weeks," he says. "It was the first time I got to be manager, at East Midlands Gas, and I hated it because I couldn't see what was going on."

Mr Wray's hands-on approach is in full effect in his efforts to reinvent the once-ailing water and waste giant. We meet at the spanking new £60m Severn Trent Centre in Coventry, which opened its doors last autumn. It is a paean to modern working practices, with 1,200 identical workstations for its 1,700 hotdesking staff and state-of-the-art IT to support them. It is also one of the most energy-efficient buildings in Europe, with its own biomass boiler and photovoltaic roof panels. For Mr Wray the building is emblematic of the changes he is working in the business he has run for the last five years. "This place embodies what Severn Trent is about," he enthuses. "It's all openness, teamwork, high standards and low charges."

It has been a tempestuous time to reinvent the company. Three short years ago, Severn Trent was fined £36m for a combination of appalling customer service and false reporting of leaks in the years before the current executive team took over. Mr Wray's response was a major overhaul: slimming down the property portfolio to pay for the new HQ, redesigning company processes and centralising staff, while simultaneously facing catastrophic floods in Gloucestershire and a five-year regulatory price review.

"The last few years have been phenomenal," Mr Wray says. "How many companies can say they've consistently improved performance and along the way dealt with reputational issues, major emergencies, company restructuring, and so on?"

But the Severn Trent boss is not simply trying to reinvent his own company. The dust is finally settling after Ofwat's 2010-15 price settlement. And as attention turns to the next round, it's time to recreate the whole industry. "We're already in a place where there is suboptimal resource planning and capital investment," he says. "Now's the time to face it."

Water is a surprisingly complex business. It is the most visceral of the utilities, and has massive capital investment requirements alongside no less than three sets of regulation – economic, environmental and public health. In the face of new challenges, the industry needs major deregulation, according to Mr Wray.

Part of the problem is simple economics. Ofwat's price review holds water bills broadly flat for the next five years. But to fund the £20bn of investment needed over the next 20 years, prices will have to rise by nearly 30 per cent, according to Mr Wray's estimates. And even then, the sector will still rely heavily on capital from investors. The trouble is both the direct squeeze on prices and the knock-on effect on investor returns, which threatens to drive them away altogether. Meanwhile the companies' ability to improve their efficiency is limited by the structure of the industry.

The regulatory system needs big changes, says Mr Wray. "Have the last 20 years been wasted? Absolutely not. The mission then was to take the disparate activities of the water authorities and get everything up to standard," he explains. "But the question is whether the next 20 years is same as the last, and the answer is that it is fundamentally not."

Investment cannot be allowed to stall. Just look at Northern Ireland, where 40,000 irate householders were left without water over Christmas because of pipes burst by the sudden cold snap. "Northern Ireland has had nothing like the 20 years of capital spending that we've had, and look what happened," Mr Wray says. "The lesson is that now is not the time to pull out investment." Such extreme weather is the game-changing challenge facing the industry. Even at Severn Trent, the bill for the December snow will run into the millions – what with the cost of extra call centre operatives, of finding and fixing record levels of burst mains, of working around the clock to protect machinery from freezing. And climate change is not just a question of financial cost, but also of optimising an increasingly scarce national resource.

"We're beyond the point of whether you believe in climate change or not – the reality is we're experiencing more extremes and we have to find ways to cope," Mr Wray says.

Which brings us back to deregulation. Mr Wray admits in part he joined the water industry – after stints in gas, electricity and telecoms – because it was ripe for the massive structural overhaul he has seen elsewhere. The experiences have certainly informed a clear idea of what needs to be done. The length of the price review period should be increased, to give investors a longer-term view, he ways. Merger and acquisition rules must also be slackened, to allow for much-needed consolidation. Where there are now 22 water companies, there should be less than 10. Most importantly, suppliers should be encouraged to trade water between them, rather than clinging onto self-sufficient monopolies within fixed regional boundaries.

"At the moment, given the choice between sourcing low-cost water elsewhere or building a new reservoir, you build the reservoir," Mr Wray says. "That way it goes on your 'regulated asset base' and you get to put your prices up and get a regulated rate of return on it. It's a solution, but it's not sustainable."

The changes he proposes are radical, but they are slowly gaining traction. With a string of reviews under way, and a Government White Paper due in the summer, Mr Wray is hopeful of progress. But he also believes he has the inevitability of economics on his side. "Something has to give," he says. "It will be as big a change as privatisation, but it is the only way for investment to be affordable."

Meanwhile, the perpetual revolution at Severn Trent continues. The foundations are being dug for an operations centre in Shrewsbury built entirely out of recycled materials. Basic customer service scores are now consistently high, so the priority is shifting to making customers feel cared for as well as solving their problems. And while Mr Wray is coy about an acquisition spree in a newly-deregulated industry, he admits that getting the company in shape will let it take whatever opportunities might arise.

The reinvention of Severn Trent is only just beginning.

On the waterfront: CV

* 2005 to date: Executive director and then chief executive of Severn Trent plc, which supplies 1,900 million litres of water per day and deals with 2,500 million more litres of waste.

* Immediately before joining Severn Trent, Mr Wray was director of networks at the Irish telecoms giant Eircom.

* His previous career includes stints at National Grid Transco, BG Transco and British Gas.

* What keeps him awake at night? "Risk: the weather, the economy, the capital markets, regulatory reform," he says.

* Mr Wray is married with two grown-up daughters.

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs People

Finance Manager - Recruitment Business (Media & Entertainment)

£28000 - £35000 per annum + negotiable: Sauce Recruitment: We have an exciting...

HR Advisor - North London / North West London

£30000 - £35000 per annum + Benefits: Ashdown Group: HR Advisor - North London...

Finance Manager - Recruitment Business (Media & Entertainment)

£28000 - £32000 per annum + negotiable: Sauce Recruitment: We have an exciting...

HR Advisor - North London / North West London

£30000 - £35000 per annum + Benefits: Ashdown Group: HR Advisor - North London...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker