Chairman’s view: water firms are listening

It would be wrong to tar water companies with the same brush as energy suppliers – the sector’s track record since privatisation has been one of modest price rises and huge investment.

It is alarming how quickly sentiment can shift. Energy companies are suddenly on a par with banks, and water companies are being dragged into the debate about utility bills.
Energy companies can speak for themselves, but it is worth examining the facts on water bills. At the time of privatisation, almost 25 years ago, water and sewerage charges were 0.9 per cent of household disposable income, today this has risen to 1.1 per cent, not a significant change. The average household spends £1 a day on water and sewerage services and last April bills on average rose by £1 per month.
Even so, there are a growing number of customers for whom water and sewerage charges are a significant part of their disposable income and who have real problems in paying their bills.
That is why Wessex Water was the first company to introduce social tariffs. We now have 10,000 customers on a social tariff and expect the number to rise this year to around 20,000. Research shows that to benefit all those who need help, we should have around 40,000 customers on some form of social tariff.
I am a strong supporter of social tariffs. Our initial tariffs were self-funding and even if we get to the maximum uptake of 40,000 customers, the average bill will increase by only £2 per year. The traditional way of paying for water and sewerage services through rateable value contained much greater cross -subsidies. Research with our customers shows a willingness to help those with genuine problems.
But one size doesn’t fit all in terms of financial support schemes, which is why we developed a range of schemes to help those customers in genuine financial difficulty. Our affordability programme, called “tap”, offers a variety of options for customers – from payment plans to water and energy home audits – so it can be tailored to the individual depending on their circumstances. It ensures help only goes to those who really need it and we keep charges fair for all.
In-depth customer research has been a key component of preparing business plans for 2015-20. While there has always been customer involvement in developing company plans, never before has the industry consulted with so many customers using such a variety of methods to understand priorities and test proposals
For Wessex Water this consultation involved thousands of customers. It has allowed us to shape our plan around what matters to customers and this has been challenged and informed by the independent customer scrutiny group, making a real difference to our customer and stakeholder engagement and to the overall balance of the plan, ensuring transparency throughout the process.
By listening to customers and responding to the economic climate, most water companies have decided to hold or reduce bills in real terms over the next five years. And this will be welcomed by households who have been warned of rising energy prices following announcements from a number of energy firms in recent weeks.
Much has been achieved since privatisation. More than £110 billion of private capital has been invested in the water sector to deliver major improvements in customer service and environmental quality. Levels of customer service are higher than they have ever been and customers’ bills a third lower than they would have been had the industry stayed in the public sector. The business model developed at privatisation has been effective over the past 25 years and has delivered significant benefits for customers and the environment, but the model needs to evolve.
For Wessex Water, this review provides an opportunity to deliver services in more innovative ways to keep bills down and standards up. There has to be a growing focus on sustainable solutions rather than relying on our history of building assets. That is where alternative ways of doing things such as dealing with nitrates through catchment management and removing phosphorus using reedbeds, need to replace the more traditional methods of building treatment plants. Most companies now benefit from using no-dig technology to minimise inconvenience to communities when replacing pipework and allow work to be completed sooner and more efficiently.
However, the biggest influence on bills is the cost of finance: this is driven by the general economic climate and by the views on risk taken by investors. It is essential that investors see the water industry as a safe, stable investment. Having strong, independent regulation, free of political interference, is key. Rhetoric about freezing bills or revising industry structures only serves to spook investors and drive up the cost of finance, to the detriment of customers.
The water industry is fortunate that the new team at Ofwat is seen to be strong, independent and on top of the key issues. The regulator is tackling the concerns of prices, structures, transparency and governance. We should support this approach because if it keeps the interferers at bay, companies, investors and customers will all benefit.