Water firms to tackle boom-and-bust with accelerated investment

Thousands of jobs in the UK water sector could be saved after the industry came to an agreement this week to accelerate more than £100 million of investment.

Regulator Ofwat has allowed water companies to bring forward vital maintenance and improvement works from the AMP6 cycle into 2014/15 to smooth investment.

As part of the arrangement, water companies have committed to covering the the cost of borrowing the money to do the work a year early.

Richard Coackley, cyclicality working group chair and former Institution of Civil Engineers (ICE) president told Utility Week he expected companies to put in “a reasonably substantial sum” upfront.

The move is intended to reduce the peaks and troughs of investment in the water sector. Previously, investment declined significantly in the last and first years of the five year regulatory period, while ramping up in the middle years.

Research by industry trade body British Water has shown that this cyclical spending has led to job losses of up to 40,000 in the sector.

Under the new arrangement, each water company will confirm the amount of transitional investment they are looking to accelerate as part of the 2015-20 business plans, which are due to be submitted to Ofwat in early December.

According to British Water, initial feedback indicates that companies will bring more than £100 million of work forward.

Paul Mullord, British Water UK director, who first noticed the problem of cyclical spending in 1994, told Utility Week that the water companies had been “in denial.”

“I’m not sure the water companies realised how big a problem it was and I don’t think they had a particular appetite to do something about it,” he said.

According to Mullord, both water companies and customers will benefit from the new arrangement.

“It goes into [water companies’] overheads, and their prices, and ultimately the one person that ends up paying for that is the customer so if we can reduce that cost,  customers will benefit,” he said.

Coackley said that Ofwat’s decision to allow transitional investment would help to reduce the peaks and troughs of workload that “do so much damage” to companies working in the water sector.

“We believe that the water companies will bring forward significant volumes of work, not only ensuring more efficient delivery through the reduction in the rollercoaster cycle of investment, but also contributing to growth in the economy by bringing forward much needed spending,” he said.