Northern Ireland Water faces some unique challenges. As both a regulated utility and a non-departmental public body, it relies on the government for money. Being a long-term business in a short-term funding situation is not easy.
Regulatory economist and policy adviser John Smith told delegates at WWT’s Water Northern Ireland conference on 24 February that the company lacks medium-term funding security, as it is forced to operate within an annual budgetary cycle of public funding.
Introducing the conference, Smith said: “This is clearly an impediment to delivering major capital schemes and contributing, along with other organisations, to the resolution of Belfast’s strategic drainage issues.”
This lack of long-term certainty for Northern Ireland Water (NI Water) was an overriding theme at the event. Chief executive Sara Venning spoke passionately on the issue, and warned that an erosion of funding is something that holds “the real and perhaps inevitable prospect of not just the aestivation of forward momentum, but of regression”.
A great deal has been achieved in the Northern Irish water sector in recent years, and this gives it a good platform on which to build. However, Department for Infrastructure permanent secretary Peter May said this is no excuse for complacency. He told delegates: “As we move forward, we need to think differently about how we build an understanding of the place water infrastructure has in wider society – both in order to continue the good work that has already been done, but also to be able to get the bind needed from across government and more widely, to deliver on the big strategic objectives underpinned and set out in the long-term water strategy.”
May applauded NI Water for having delivered without being fully funded. But Venning told delegates it is not the company’s intention to rest on its laurels, but to match and exceed what it has done. “We have to be strategic in our approach and plan ahead – we’re a long-term business – so that we can continue to safeguard our environment to protect the health of the communities we serve and provide infrastructure that will allow the economy to develop and grow,” she said.
Aligning itself with this need for long-term planning, the Utility Regulator laid out plans to address longer-term sustainability issues in its latest price control – PC15. As part of this, the price control was lengthened from two or three years to six. The Utility Regulator’s finance and network assets director, Brian McHugh, explained to delegates that one of the reasons for that was to give utility companies more space to invest and deliver solutions, and more time to get a reward for their innovation.
As it starts work on the next price control – PC21 – McHugh said the Utility Regulator will look to other regulators to work out best practice, and what should be done to promote innovation. However, it is committed to a hands-off approach, and does not wish to “get in the way” of innovation. “We see our role as understanding when there are any regulatory blockages in the existing framework which would prevent companies from innovating. We then leave it in the hands of the companies to decide what innovation they want to do and what risks they want to take,” McHugh told delegates.
“We are very happy to talk about what incentive package there should be to promote innovation, and then let the companies get on and do it in order to deliver against the outcomes that consumers want.”
Ultimately, speakers agreed, a collaborative approach will be needed to ensure the successful delivery of exceptional service to customers and to address long-term sustainability and environmental issues.
Views from the speakers:
“The UK water industry has invested heavily, over the last quarter century, in improving drinking water, bathing waters and river quality – investment since privatisation totals £116 billion. Most of this has been driven by EU directives, and now Brexit brings uncertainties about the future framework for the industry.”
John Smith, regulatory economist and policy adviser
Peter May, permanent secretary, Department for Infrastructure
“When everything goes well, that all too often gets taken for granted. But when it does not, and people don’t have access to the services they need, it is a calamity. And, perhaps particularly given where we are today, it is a calamity for which someone must be held to blame.”
Sara Venning, chief executive, Northern Ireland Water
“Digital can transform how we do business. Our customers and stakeholders expect some of their relationship with us to be through digital channels, and we can harness digital further to empower our employees and really improve how we liaise with stakeholders.”
Brian McHugh, finance and network assets director, Utility Regulator
“We are very keen to get out of the way in terms of innovation. We see our role as understanding when there are regulatory blockages… which would prevent companies from innovating. We then leave it in the hands of the companies to decide what risks that they want to take.”
Anthony Cox, deputy director, environment directorate, OECD
“There is a marked mismatch between the political cycle and the water infrastructure investment cycle [in Northern Ireland]. However, experience from around the world would show that giving water providers a greater degree of financial and operational independence has often been a beneficial step in reducing the political obstacles.”
David Porter, chief executive, Rivers Agency
“There’s an awful lot of talk about climate change, and about more frequent flooding in recent times. I think a more significant change is the fact that society is now much more affluent, so whenever a flood happens the cost of that is much more significant than it was in the past.”
Gordon Reid, wastewater service strategy manager, Scottish Water
“We need to think about how we transform our asset base to be more sustainable. How can we take advantage of new technologies for treatment to drive down energy use? Just under half of Scottish Water’s carbon footprint comes from the wastewater systems.”
Five key points:
1. Partnership – collaboration is needed between all parties involved in the NI water sector to ensure the successful delivery of exceptional service to customers and to address sustainability and environmental issues.
2. Long-term planning – a lack of funding certainty means NI Water, and the wider water sector, must plan.
3. Employee engagement – to ensure the future high standard of delivery to customers, NI Water needs the right number of people with the right skills in the right place at the right time. Employee engagement is paramount.
4. Innovation – companies, including NI Water, are expected to innovate to outperform their settlements. The Utility Regulator is committed to a hands-off approach, and says it will let the companies get on with it themselves.
5. The rise of digital – new digital technologies can transform the way water companies do business, as it facilitates new ways to engage with customers, stakeholders, and employees.