02/09/10
The power and precision of a symphony orchestra with all the players going full tilt can still match a big pop or rock act for impact. For the first time in its modern history, the water industry is testing its own power and precision on a single score.
It has released a collective call for changes to policy that will give it scope to meet society’s changing needs.
'Meeting Future Challenges: a blueprint for policy action'* starts from the view that the progress of the past two decades has been down to good management and effective regulation; the experience and expertise the sector has gained are a strong foundation for the future; and what is needed now is change that builds on the industry’s performance without risking its achievements.
Top tunes
The industry blueprint is not the only the only show in town. Alternative productions, some more 'alternative' (and risky) than others, are playing now on stages around the country. The Cave Review of competition and innovation, the Walker Review of household charging, and Ofwat’s reform strategy all have much to offer. Indeed, some of their top tunes are in the industry offering. But water music lovers (and government ministers) may feel these are individual talents beside the industry’s comprehensive back catalogue and businesslike programme for 2010-12.
The challenges facing the sector are pretty well understood. Coping with pollution and tighter quality requirements; managing surface water drainage; providing a secure supply-demand balance with affordable charges; reducing greenhouse gas emissions; and adapting to climate change, all add up to a daunting task.
Well-received strategic direction
Reform is certainly necessary, but the context is well known and positive overall. 25-year strategic direction statements were well received. We know what customers want and are willing to pay – in survey after survey the findings are consistent. There are two watch-points in the coming months: businesses are more likely to respond to incentives than to direction; and they must retain the support of customers and investors.
The industry blueprint was released in June, a few days before the Emergency Budget. The events were unconnected except of course that the water plans are bound to be seen against the national economy that made the Budget necessary. So when the Chancellor prescribed tough medicine for the public finances, he also, without knowing it, strengthened the water industry case for change.
The aim of the blueprint is to allow water companies to go on improving service standards for customers in the face of new challenges; but because water and wastewater services are a core part of national infrastructure, it can also help rebalance the economy and get Britain on course for a low-carbon future.
Customer relations
How can a mere set of proposals make both citizens and ministers happy? By providing fresh approaches to policy that will enable the industry i) to transform its relationship with customers and all water users; and ii) to go on raising its productivity and standards.
The priorities for making this happen are:
• Putting customers first, means recognising that in the past the environmental lobby was often more organised, and the environmental need so pressing, that consumer views lost out. Now we need a more measured pace to improvements to ensure, overall, that prices are acceptable. Customers and companies should take greater responsibility for customer service, negotiating through a representative consumer body such as a strengthened Consumer Council for Water. A new charging strategy is also needed that gives customers the incentive to use water wisely but also ensures that everyone can pay for the service they receive.
Priority productivity
Three other priorities will together ensure a more competitive and productive water industry that makes even better use of resources in a stable financial environment.
• Renewing incentives for efficiency and sustainability can remove the bias between capital and operating solutions. It can create a better balance between risk and reward; for example, if a company, with its customers’ agreement, decides to go beyond official minimum standards. Overall efficiency gains may come from facilitating capital market competition through a change to the merger regime.
• Developing flexible regulation will put a new focus on what really matters to customers and others, rather than on compliance with every last regulatory detail. More use of price signals can encourage sustainable outcomes, for example through abstraction and discharge permits with variable charges that reflect different costs at different times and places. Removing barriers to upstream trading of licences can create a market that will improve the valuation of water resources.
• Ensuring sustainable access to the capital markets can create a more stable and lower-cost service in tune with the times. This means policy recognising both companies’ continuing need for equity and debt capital, and Ofwat’s joint primary duty to allow companies to finance their functions. It will also mean ring-fencing or allocating Regulatory Capital Value so as to ensure the competition agenda does not leave existing assets stranded and redundant.
'Meeting Future Challenges' employs the complementary roles of regulation and competition. It is an ambitious but realistic way forward supported across the industry. It can be the theme song for two more decades of successful service on behalf of, and in concert with, the community.
In the coming months, the industry will be working hard with policy-makers, regulators and interest groups, not perhaps to teach the world to sing its blueprint, but at least to help people recognise the tune and the value in its carefully crafted lyrics.
* Meeting Future Challenges, Water UK, June 2010 at www.water.org.uk
A version of this article, by Barrie Clarke, appeared in Water & Sewerage Journal, Summer 2010
