Interview: Martin Baggs, former chief executive, Thames Water
“From a water company point of view, it is too easy to say ‘here’s a list of reasons why competition won’t work’.”
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Three months ago, meeting Martin Baggs involved drawn-out negotiations with press officers and ended in chaperoned meetings under their watchful eye. Now, at a quiet table in the basement cafe of the Institution of Civil Engineers, the shackles are off and he is free from scrutiny. With a smile touching the corners of his mouth, he says: “Of course, civil engineers are the only real engineers.”
Our correspondence to arrange this meeting had been via email, no press officers involved. The location, his suggestion – close to Westminster, where he has a dinner engagement that evening.
However, for all his joviality, Baggs also has the air of a captain without a ship. “From being at Thames Water for seven years to not being there is a big change. To go from a phone that’s buzzing all the time – it does change the way you live.”
After 30 years in the water industry, Baggs is in two minds about whether to stay in the sector or branch out. “Part of me is heavily tied to the water industry and all the knowledge I have in it.”
Another part of him wants do something different. A chief executive role in another industry perhaps, or greater involvement in infrastructure development. “At the moment, I have a very open mind, but my wife will tell you that I’m not retiring – that has been made absolutely clear to me.”
Baggs left Thames Water last month having achieved everything he set out to at the company. He decided seven years there was long enough.
During his tenure, the number of customer complaints to Thames halved; the number of health and safety incidents halved; all major targets were achieved; a “game-changing” alliance – eight2O – was created; and the biggest infrastructure project ever undertaken by the UK water industry – the Thames Tideway Tunnel – was launched.
The Tunnel, which is about to begin construction, is now in the care of special-purpose vehicle Tideway, but it was the brainchild of Thames Water along with the Environment Agency, the Department for Environment, Food and Rural Affairs and the Greater London Authority.
In the early 2000s, Thames Water conducted the Thames Tideway Strategic Study and published a final report in 2005. Four potential strategies were discussed, but only one, it concluded, would be enough to reduce sewage pollution in the tidal Thames and protect its ecology – the screening, storage or treatment at the point of discharge. Thus, the Thames Tideway Tunnel was born.
Thames says the Tunnel will bring a host of benefits: it will collect nearly all the 18 million tonnes of sewage that pollute the Thames each year and will “ensure a healthy river environment for current and future generations”.
Baggs insists the Tunnel is needed. However, he says it is not the only answer. Other solutions, such as sustainable drainage and catchment management, must also be considered. “When people say there are alternative solutions, I’ve got a lot of sympathy for that, but for something to take the total place of the Thames Tideway Tunnel, the scale would be massive.”
Blue-green initiatives are part of the overall solution to the problems of sewer flooding and pollution, but they are by no means the only answer, Baggs adds. They need to be applied in conjunction with the Thames Tideway Tunnel, and will all contribute to the long-term resilience of the water system.
The issue of resilience is something he feels passionate about. “When you work for a water company, you are totally obsessed with the weather. You rely on the right type of rain – steady drizzle between about midnight and four o’clock in the morning.”
Baggs says the worst periods of his Thames Water career were the winters of 2012/13 and 2013/14, when severe flooding hit much of the country following a prolonged period of drought. “It’s all too easy to say ‘flood defence is all down to the EA, it’s all down to the water companies, it’s all down to local authorities’, but it is a massively complex area.”
No single organisation currently has sole responsibility for dealing with flooding in the UK, which can be confusing for customers whose homes are flooded. In England and Wales, the Environment Agency remains the lead agency on flooding. Ofwat has suggested an expansion of water companies’ roles to reinforce flood defence, but no regulatory change has so far been made.
The intense flooding in the recent past highlights just how important resilience is going to be in the future to deal with increasingly prevalent issues such as flooding and drought. As laid out in the National Flood Resilience Review, utility companies have made a commitment to increase the flood protection of their key local infrastructure assets so that they are resilient to extreme flooding.
Baggs is full of praise for former water minister Rory Stewart, who he says worked well with the water companies to drive the debate on long-term water resilience. Stewart asked the industry to look beyond short-term planning; to come up with a water resources plan for the next 50 years – something Baggs says he sincerely hopes happens.
“The staggering thing – and I do find it bizarre – is that there is no national plan for water.
“You see lots of articles about the development of a national grid, but that is all pie in the sky. As it stands today, there is no national grid, no national plan for water. You cannot just look at the water companies in isolation, particularly in the South East of England. We need to look beyond local infrastructure, at our national infrastructure.”
During Baggs’ time at Thames Water, the business was reorganised and revamped into what he calls a “four-box model” – a separate water business, wastewater business, and retail businesses for household and non-household customers.
He is confident that the non-household retail market will open on time, because the industry has invested a huge amount of money, time and effort in getting ready for it. The pace and scale of it mean there are bound to be problems, he says, but there has to be a realistic expectation of what success looks like from day one. “It is a big ask for it to work from the start, but the feedback I’ve received is that the preparation, the testing and the data management are going really well.”
Thames Water shocked the sector in July, when it announced it would exit the non-household retail market when it opens to competition in April 2017, and would pass on its business customer base to Scottish new entrant Castle Water. It wasn’t always the company’s intention to exit the market, Baggs says. However, after a long and hard debate, the board decided it was the right thing to do, and it is a decision by which he stands staunchly three months on.
He says customers will be safe in the hands of Castle Water – a more agile company that can provide an equal or better service than an incumbent water company. “Companies need to decide what they want to be in life.”
Does Baggs think the government will go for household competition? It makes sense for customers, he argues, and part of the reason for Thames Water’s exit was to allow it to focus on its much larger domestic customer base.
Baggs believes the savings for customers from opening the market could be much higher than the £8 a year mooted by Ofwat in its recent cost-benefit review. That, he says, is the problem with looking at it from an isolated water perspective. When you start bundling services such as gas, electricity and telecoms together, it starts to make more sense. “When you can add water to that list, I think it will be a game-changer.
“From a water company point of view, it is too easy to say ‘here’s a list of reasons why it won’t work’, but if you’re a customer and someone knocks on your door with a clipboard and says ‘I’ll give you one bill for water, gas, electricity, telecoms, and by the way I’ll save you £30 a year as well’, people are going to say yes. We all like an easy life and we like saving money.”
Looking forward, Baggs warns that Ofwat’s next price review – PR19 – will present the industry with many challenges, but says the opportunities will be even more prevalent. One opportunity he is particularly excited about is direct procurement, which paves the way for big water infrastructure projects to be developed by organisations outside of the core water market. This is a revolutionary way of financing large infrastructure projects, Baggs says.
However, the need for investment in new large infrastructure projects is only part of the equation and, he says, there is a whole suite of things that need looking at. “More can be done in terms of utilising the water that is already available; more can be done in terms of trading; more can be done in terms of water efficiency; and more can be done in terms of customer engagement.
“Then there is the bioresources market – otherwise known as the sludge market – but it is not just about sludge.”
Sludge is the by-product from the wastewater treatment process, but how companies combine that with the treatment of other waste streams is critical. “The big win from that is renewable energy generation,” Baggs adds.
Fresh from the telecoms sector, Thames Water’s new chief executive, Steve Robertson, has got his work cut out – faced with the opening of the non-household retail market, the possible opening of the household market, and reforms to wholesale driven by a “pro-market regulator”.
Utility Week asks what advice Baggs has for his successor as he takes on these challenges. He grins and says: “I’ve spent many hours with Steve. I’m a strong believer that businesses go through phases, and are in need of a refresh from time to time. Thames needed a new chief executive.
“Steve has a huge amount of energy, which is needed for a role of that size. With Steve’s background, I am sure he is more than capable of taking it on to the next stage.”
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