Dan Rogerson is in a hurry. The water minister, freshly promoted from the Liberal Democrat backbenches, has had a challenging start to his tenure, thanks to the floods. What should have been a comfortable “getting to know you” period has instead been characterised by a hostile media (the Sunday Mirror dubbed him the “invisible minister” for his low profile during the floods) and some tricky questions in the House of Commons, deputising for environment secretary Owen Paterson (on sick leave thanks to an ill-timed detached retina).
So as Utility Week arrives at the headquarters of the Department for Environment, Food and Rural Affairs for a long-awaited slot with the minister, it’s no surprise to be kept in a nearby waiting room as he finishes up a phone call. Ushered into his presence, it’s soon clear there’s no time for small talk, and it’s straight down to the serious business of the Water Bill (he stands by it), retail exit (there won’t be one), and the price review (Ofwat is spot on).
First up, the floods, which were extraordinary this winter not so much for their severity as their frequency. Does the minister expect more extreme weather events, and are the water companies ready? “I’m not going to claim to he able to predict the weather and what will happen next year,” he replies, “but we do seem to be having more extreme events and we have to make sure that we are resilient in what we’re doing.” He refers to the new primary duty of resilience being placed on Ofwat by the Water Bill, saying: “During the recent events I’ve been in touch with the DWI and also direct with a number of water companies about the situations and the threats to their infrastructure and what they’re putting place to deal with that. I was very impressed with how they rose to the challenge to maintain service to customers in terms of water supply.”
Rogerson acknowledges the problems with sewer flooding that have arisen during the floods, and the complications caused by the complex web of responsibilities between water companies, local authorities and the Environment Agency. Does this need another look? “There are discussions between local authorities and water companies about who has responsibilities for what during the clean-up and the restoring of services. I don’t think we need to necessarily bring in a whole new set of regulations, but of course we are having a ‘lessons learned’ exercise that will be led by Oliver Letwin, and if that’s an issue that comes up specifically in that, we’ll review it at that point.”
He is vague on the detail of the lessons learned, and the role that water companies will play. He says Letwin will “potentially” be talking to the companies – or he will. This would be welcome, as the industry speaks well of Rogerson. “He’s someone you can do business with,” said a company insider. “He listens to both sides, he’s sensible and pragmatic and open to seeking a tactical way forward – rather like Richard Benyon.” Praise indeed because Benyon, his predecessor, was highly thought of by the end of his three-year stint in the job.
The resilience duty was controversial in some quarters for broadening the role of Ofwat from that of an economic regulator. Is this an ideological shift in how the sector is regulated? “We have a functioning market, it’s a regulated market and that’s what they’re there to do, to make sure the market works. In order to have that functioning market, we need to make sure we have that resource there as well, and for all the reasons we’ve seen when events come up we want to make sure that resilience is in there.”
Rogerson argues that Ofwat should be able to take whatever action it deems necessary outside its core function of bills and the operation of the market. “We don’t want to put barriers in place,” he says – although surely there’s a difference between the government not doing something (erecting barriers) and it proactively doing something (adding a new duty)?
These are fine details, and there is no time to debate them today. On to the rest of the Bill, and the most significant change it introduces – the opening of the water market to competition for non-domestic customers. The deadline for market opening is 2017: are companies up to it? “Yes,” he replies – but there’s a caveat. “I don’t think it’s the sort of thing that will all take off on day one. Some people will sit back and watch how it works for others before they decide whether they want to look at exploring the options.”
As Utility Week revealed earlier this month, the Open Water programme, charged with designing the market, has bid farewell to its chief executive after seven months in the job and is undergoing some radical changes of structure and personnel. Does this concern the minister? “The organisations that are engaged in that programme remain the same. People stand down for their own reasons and it wouldn’t be right for me to comment on those. The work that Open Water is doing is something that I very much welcome and that work continues.”
Which brings us to the vexed question of retail exit. This has become a political hot potato, with a consensus emerging among companies, potential market entrants and the regulator that companies that do not wish to play in the competitive market should be allowed to exit. There have been several efforts to bring forward an amendment to this effect, which have so far failed – although the Bill has still to pass through report stage in the Lords. Feelings are strong: Ofwat chief executive Cathryn Ross recently said: “Our view is that retail exit for incumbents is a critically important element of a functioning, effective retail market. Particularly important is the fact that if we do not allow incumbents to exit, essentially we are mandating ineffective retailers remaining in the market. That would basically be baking in costs that customers would have to pay for, which we can easily avoid.”
Rogerson points out that his view is “on the record, there in Hansard”, before reiterating the government line: formal separation of companies could be technically problematic and worrying for investors, and the government wishes to protect household customers (it’s not really made clear how allowing companies to exit the non-domestic market would endanger household customers). Rogerson repeats what he said in the House, that the government is not saying “no” forever, but rather “not now”. Again, it’s not clear what might change at an unspecified point in the future to transform a bad idea now into a good idea then. The minister argues that the level of switching, at least in the early days, will be so low that it won’t be a problem. He says: “There is an awful lot of business out there, looking at Scotland how many people have chosen to switch, there’s plenty of business out there for people coming in without some of the existing companies having to walk away or suddenly find all their customers have disappeared. I’d be staggered if we were going to see that level of switching early on in the process.”
Before his promotion to minister last autumn, Rogerson was a member of the EFRA committee, which has been a vocal critic of the Water Bill in its current form. The committee, chaired by Anne McIntosh, has attacked the Bill for dodging crucial questions, for example over metering and abstraction reform. Has the minister changed his view since leaving the committee for government? “As you can imagine, there are a range of opinions across the committee. The committee comes to a view which it expresses, and the government responds to that. There are some things you do as a member of a committee where you’re setting out a challenge to government where you can be…” he pauses carefully. “The burden of proof is a bit lower for raising a question to government than it is as government legislating. When you’re in government you want to test those things more fully before you make changes, so for example retail exit.” So is he now satisfied with the Bill? “The Bill will make a real difference, and a real contribution. It’s a real step forward.”
It does leave some unanswered questions, however, particularly around the crucial reform of abstraction. “That’s a very sensitive area of work, we need to make sure we are taking everyone forward with us and reaching agreement on what’s the right approach.”
We could spend hours tussling over what is and isn’t, should and shouldn’t be in the Water Bill, but time is ticking on, and a sideways glance reveals the minister to be wagging his eyebrows at his press secretary, who duly interrupts at minute 17. “I’ve got be in the House,” says Rogerson with a “what can you do?” smile. Time for just two more questions, then.
Affordability is top of the political agenda, and Ofwat is bearing down hard on the companies in the price review. What does the minister say? “We want to see them taking account of the low cost of borrowing that companies have benefited from, perhaps to an unexpected degree. Ofwat under Jonson Cox has taken that forward and to be fair to companies, they’re responding to that.” He refers to the decision of the vast majority of companies not to take their full price increase this year – a reputational win for the sector.
And finally, what of all those national media stories on dividends? “I very much welcome the approach Ofwat is taking there on their expectations on companies in terms of transparency, proportionality and I think that’s the right place to have that discussion. We’re not getting into the business of government ministers dictating these kind of questions, it is very much the regulator – but it needs to be a robust regulator, which is why I welcome Ofwat’s approach.”
And with that, a firmly smiling press officer rises to her feet and the minister grabs a sheaf of papers and heads for the House.