For UU, the incident has hit not only its reputation, but it is set to dent it financially as well as the regulators and disgruntled customers look for recompense. Compensation, fines, and a hit to its AMP7 price control are all possibilities UU currently faces as a result of its Preston parasite.
The incident
Traces of cryptosporidium were found in the Franklaw water treatment works in Preston on Thursday 6 August. Almost immediately UU issued a boiled water notice to 300,000 customers across Lancashire “as a precautionary measure” to prevent anyone suffering the ill effects of the parasite.
Issuing the boiled notice was UU’s first action, as it attempted to limit the health risk to its customers. UU customer services director Gary Dixon tells Utility Week: “It’s always a difficult decision to put a boiled water notice on, but we felt on balance that it was the right call to protect our customers.” A week after being first issued, the notice remains in place.
A sample from the site was given the all clear a few days after the parasite was found, with UU saying this shows the site is functioning properly. UU added it will not look to spend more at the plant because it has benefited from “significant” investment over the last five years.
Investigatory work is still ongoing to find the source of the cryptosporidium contamination, which is likely to have come from in the catchment area upstream of the treatment works.
Cryptosporidium
- What is it? A parasite
- What are its symptoms? The most common symptom is diarrhoea but other warning signs include dehydration, nausea, vomiting, fever and weight loss.
- What is the treatment? Most people can recover without treatment by making sure they drink plenty of fluids, replacing what they lost.
- Where is it found? It is usually found in water, food or soil contaminated by infected faeces. It lives in the intestine of infected animals and humans and is found in their faeces.
Impact on UU
Only a “handful” of people have so far complained about feeling unwell, although these have not yet been linked to the Cryptosporidium found at the water treatment works.
The Consumer Council for Water (CCW) has only has two complaints made directly to them about the incident, so it appears as though UU managed to issue to boiling notice in just in time. However, with cryptosporidium having a seven day incubation period, there may be more reports yet to come through.
Aside from the reputational impact UU has suffered – “obviously when anything like this goes wrong, the company is in the spotlight and there is a reputational impact” says Dixon – the company is also set to face a financial hit.
Analysts at RBC Capital estimate the incident could hit UU to the tune of £20 million at the time of the next price review. There are two outcome delivery incentives (ODIs) which could be affected. These are the DWI’s category 3 water quality events standard, and the water quality service index.
The extent of the issue – which is currently being investigated by the DWI – will determine how much either UU’s revenue or regulatory capital value (RCV) for AMP7 will be impacted. RBC Capital states it could be 0.2 per cent of RCV for 2016, equivalent to £20 million.
Alongside this, there are shorter terms costs the company is facing.
UU has stated it will award compensation for the inconvenience of having to boil water for seven days, although the details of how much residential customers will be eligible for is still to be decided.
Non-domestic customers may be able to claim more back from UU, especially if their business has suffered as a result of the boiling notice. Dixon says these businesses will have to provide evidence of their losses, and then “specialists” from the company will work with them to decide on an appropriate level of compensation.
In other Cryptosporidium events (see box), the DWI issued fines on the companies for failing to provide water fit for human consumption and for failing to disinfect water.
UU could be taken to court and face the same charges, which could result in a fines similar to the £130,000 Bournemouth Water was hit with.
This will depend on the number of people that became ill as a result of the water contamination – which is currently unconfirmed but potentially only a handful – and on the actions taken by UU to prevent the outbreak, and their actions on dealing with it once confirmed.
Whitman Howard utilities analyst Angelos Anastasiou says while the outbreak is “serious”, UU is unlikely to suffer too much financially as a result.
He adds that compensation will be paid and “there may be some further repercussions once the cause of the outbreak is found (not necessarily affecting UU)” but adds this is not “overly significant in the longer term”.
UU’s share price reflects this view and has remained roughly consistent with the price it has been over the last six weeks – at around the 870 to 890pps mark. There was a dip in the share price following news of the contamination from 898.5pps on the 6 August before the boiling notice was issued, down to 881.5pps on the 12 August. This has since rebounded slightly back up to 890.5pps.
Damage has been done to UU’s reputation, and potentially to its bank balance as well once the compensation claims, possible fines, and RCV reductions are factored in. But it seems as though longer term loss will be limited, and the recovery process will be swift.
Other outbreaks
- Bournemouth Water: March – April 2013
- Found guilty of supplying water “unfit for drinking” after its supply was found to contain low levels of cryptosporidium.
- Fined £85,000 and ordered to pay £48,772 in legal costs.
- The company was also forced to invest £3.5 million in a new ultraviolet plant at its treatment works within months of the outbreak.
- Welsh Water: November 2005
- A total 231 confirmed cases of cryptosporidiosis linked to mains water supply from Llyn Cwellyn, north west Wales.
- Welsh Water installed new ultra-violet (UV) treatment at the plant. Once installed and shown to be effective, the advice to people to boil their mains tap water was lifted.
- Fined £69,399.43 by the DWI