The water industry in England and Wales was privatized in 1989 and today 18 independent, privately owned companies are the monopoly suppliers to 22 million households. Ofwat (short for Office of Water Services) was established at that time as a non-ministerial committee with its primary responsibility being to regulate water service prices.
Last week a parliamentary Public Accounts Committee published its findings that Ofwat overestimated the costs and financing of the water companies over the last five years, resulting in £1.2 billion (~$1.73 billion) in what the public considers “windfall” gains to the water companies.[1]
Over the past five years, shares in some of Britain’s privatized water companies have risen by 50% during a period when the stock market as a whole has been fairly stagnant. In parallel, consumer bills have risen every year on average by 0.5% above inflation.[2] The current average annual water and sewerage bill of £396 represents a 40% increase in real terms since privatization, though most of this rise took place in the first five-year period (1990-1995) [1].
This revelation of large gains comes at a time when, according to Ofwat, the water companies are owed a record £2.1 billion by customers, with bad debts adding £21 to the average annual water and sewerage bill. This figure represents a 17% increase since 2010, with the households most likely to struggle to pay their water bills being working-age adults living alone, single parents and single pensioners.[3] The average annual water and sewerage bill now constitutes 5.3% of the annual income of these poorer households, compared with 2.3% prior to 2008.[2]
Already in October 2013 Ofwat contacted the water companies that it regulates to suggest that they voluntarily forego a proportion of bill increases they were entitled to in 2014-15 in light of the generous price review settlement and pressure on household bills – with only 6 of the companies responding positively[2]. It seems that Ofwat is now flexing its regulatory muscles more forcefully and has ordered the companies to cut bills by 5% in real terms by 2020.[3]
In light of these waves in the British water industry, the recent appointment of a third-party consulting firm to prepare a major report for industry body Water UK on the resilience of UK water supplies[4] takes on additional significance. Water UK’s mandate is to bring together all stakeholders – statutory bodies, water utilities and consumers – in order to set long-term policies that will ensure the future of Britain’s water supply. Clearly one of the objectives of this report needs to be how fair prices can be safeguarded as critical investments are made in the water infrastructure.
The Final note
As a final note, we here at Arad believe that the introduction of advanced metering and data collection technology can play an important role in both reducing water bills while enhancing water resiliency. New research from the University of Southampton shows that Southern Water’s pioneering metering program with Arad has had a significant impact on water consumption – a 16.5% reduction compared with the national average of 10%. With nearly 500,000 meters installed, customers are using, on average, 60 liters per household per day less water. When the metering program is completed, this will equate to a regional saving of 30 million liters of water every day. The reduction in demand has also had an impact on customers’ bills. To date, 62% of the metered households are paying less than the “Flat Rate” charges they used to pay before and save an average of £162 a year.
References
[1] Rajeev Syal, “UK households overpaying for water supply due to regulator miscalculation”, The Guardian, January 13, 2016
[2] Oliver Wright, “Private water companies make over £1bn from ‘unnecessarily high prices’”, Independent, January 13, 2016
[3] Patrick Collinson, “UK households owe record £2.1bn in water bills”, The Guardian, December 1, 2015
[4] Energy & Environment Management “Major project to look at UK’s long-term water resilience”, December 15, 2015