‘When I joined the Environment Agency, I was told there were two rules of thumb. First, the flood season only lasts from October to May. The second was that after the end of May, groundwater recharge never happens. Well, maybe we need some new thumbs.”
So says Dr Paul Leinster, chemist, environmental engineer and long- standing chief executive of the Environment Agency (EA). His rueful comment sums up the 15 years he has spent at the agency, a period when environmental challenges have grown and changed beyond all expectations. Speaking to Utility Week at the two-day Congress in London’s Hotel Russell, Leinster is remarkably relaxed and friendly for a man carrying such responsibility. Perhaps that’s because he’s confident that water companies are performing, Ofwat is handling the price review in the right way, and much-needed abstraction reform is firmly on the agenda.
First up is climate change. As Leinster points out, the rules of the game have changed, with extreme and unpredictable weather events now the norm. He is one of several speakers at the Congress to recall the disaster narrowly averted last year, when London was days away from running dry the week before the Olympics.
Reflecting on the infamous weather conditions of 2012, Leinster notes that one in four days were officially in drought and one in five days saw floods. Hosepipe bans affected more than 20 million people. Leinster recalls receiving a letter from the secretary of state in March, inviting him to chair the national drought group. Shortly after that it started raining – and it did not let up. In 2012 more than 8,000 properties were flooded and more than 6,000 flood warnings were issued.
This is a sign of things to come, not just a freak occurrence, Leinster points out. March of this year was the second coldest on record, but in July the Met Office was forced to issue hot weather alerts.
Also, resilience of water resources and supply systems to droughts and climate change varies across the country. In the South and South East, where there is more reliance on groundwater and pumped storage, water resources respond slowly to both rainfall and drought. In the North West, the hard rock catchments respond quickly to rainfall and equally to lack of rain.
The uncertain age of extreme weather is a real challenge for the EA. Leinster cites the floods of 2007 when armed forces were called in as Walham substation teetered on the brink of flooding. If the water had broken through, about 500,000 properties and businesses in Gloucestershire would have been without electricity.
“Cost-effective resilience is clearly prudence insurance but getting the balance right between risk, probabilities and consequences is a major challenge,” says Leinster.
“Both population growth and climate change are going to be pressures.”
Water companies estimate that climate change will reduce water availability by about 600 megalitres a day by 2040, about 10 per cent of total supply for some companies. Perhaps that is why those water companies appear to be making a concerted effort to tackle these threats head on.
Leinster beams: “We are pleased to see in those water resource management plans that water companies are including climate change impacts and those are becoming integral parts of their plans.”
There is a warning, though, for energy companies. They are the greatest consumers of water and, according to EA calculations, abstract almost three times as much as the public water supply sector. They also use copious amounts of fresh water for cooling at their plants. Leinster says energy companies could find themselves in a vicious cycle – being the cause of climate change and being at the mercy of it.
But that’s just today. The bigger challenges are about preparing for an uncertain future, and abstraction reform must be top of the agenda. The government acknowledges that current legislation, put in place to limit over-abstraction, is not flexible enough to respond to alternating floods and droughts or increasing demand.
However, after including the long-awaited reform clause in the Water White Paper, the government backed down and omitted it from the Water Bill published this summer.
This provoked criticism from the Efra select committee, which accused Defra of lacking the necessary sense of urgency needed to press on with the reform.
However, Leinister does not appear too concerned about the current pace of abstraction reform. “Abstraction reform is planned but is going to take some time to work through. I think we just have to wait to see how that gets addressed. A number of water companies have already planned in how to deal with unsustainable abstractions and I think if we can find a way of dealing with unsustainable abstractions through the Ofwat price review process, then that gives the mechanism for how you actually find dealing with these unsustainable practices,” he says.
Defra insists it is planning a number of measures to reduce unsustainable abstraction that do not require legislation. One way is to make changes to abstraction licence compensation funding losses resulting from modifications and revocations of water company abstraction licences, which will now be funded through the Ofwat price review.
Leinster seems content with this solution: “I think that is a good mechanism that will deal with a number of the water companies’ over-abstractions.”
Other reforms of the water sector are already under way, notably Ofwat’s new approach to the price review. The regulator has asked water companies to take greater individual responsibility for their business plans in this cycle, basing them on customer input and telling the regulator the best they can do. In return, it will take a lighter regulatory touch with those companies it believes deserve it.
Leinster welcomes this new approach. He says water companies and Ofwat wasted crucial time poring over detailed spreadsheets under the previous regime.
“This whole price review process for me has been interesting because if you look at the previous price review, the way it went through was line by line. Now Ofwat just says ‘these are the outcomes we want’ and it becomes quite a different discussion.
“It requires the different parties to operate in a different way, and we are all learning what those different ways of working are. Before, you used to talk about specifics and what your measure was. If you had implemented it, you could just tick that box.
“Now they have moved it up. There was a comfort blanket before, both for the economic regulator and the financial regulator. This takes it up to a whole new level. We want better water quality, we want less sewer flooding and we want more resilience.”
According to Leinster, parallels can be drawn between the EA’s thinking and Ofwat’s form of regulation.
Leinster says promoting an ‘outputs not processes’ approach is one of the EA’s main priorities. “This really is a risk-based regulatory approach which is core to how we do a lot of our regulation, but it does require a difference of thinking.”
Resilience may be high on Ofwat’s agenda in PR14, but affordability is higher. As the cost of living becomes a key electoral battleground, it seems likely that the regulator will push for cuts in bills, or at least rises below the rate of inflation. You might expect Leinster to be concerned that water companies will react to lower revenues by cutting spending on sustainability initiatives, but he remains sanguine. Clearly a pragmatist, Leinster knows that bills will be going down, but believes water companies can offset this through good management and innovation.
He concedes that water companies will have to invest to achieve sustainability goals, but he questions whether this investment has to be in “massive” infrastructure and capital projects. It’s a view that echoes Ofwat’s.
Asked whether water companies could keep bills down and use innovative approaches to maintain a good service, Leinster responds: “That is their challenge.
“What is the demand side, are there catchment approaches that can be made, what innovation drives in this whole area?
“Our challenge is this: These are the things we think you need to do and then in the debates going forward, we need to work out with the water companies and in discussion with the companies and the economic regulators whether or not the environmental controls that we believe need to be in place can be met.
“It becomes the strength of the debate about sustainability – you need the economic and the business, you need the social and you need the environment – then we need a grown-up debate about it.
“It is a challenge we would put to the water companies, to Ofwat and to ourselves.”
Leinster’s main piece of advice for the new water minister Dan Rogerson would be to focus on the Water Framework Directive because it “encompasses just about everything”, including water quality, wildlife, and dealing with unsustainable abstraction.
“From our point of view he needs to look into the Water Framework Directive and in dealing with it, think about how you take a catchment approach to it, how you can get partnerships working on it and how you get all the different players contributing their parts.”
According to Leinster, utilities must continue to “identify how they will cope with and respond to the unexpected”. In the meantime, he’s impressed with the industry and its regulator. For the water industry, it’s a big thumbs up.