Utility Week

12 | 1ST - 7TH MARCH 2019 | UTILITY WEEK A UtilityWeek c ampaign Confederation of British Industry, Carolyn Fairbairn, warns the plans will mean reduced living standards. "From renationalisation to dilution of shares, Labour seems determined to impose rules that display a wilful misun- derstanding of business," she says. Another commentator points out that cut- ting bills means e• ectively cutting revenues, and the ability to pay dividends – thereby eating away at the worth of assets. With • gures showing it would cost £69 billion to buy the 32 water companies in England and Wales [the capital value of the regu- lated assets], they warn that renationalisa- tion could very quickly become extremely expensive. Public opinion will prove key. And Labour appears heartened by the public's reception to the idea. Far from being "horri• ed" at the prospect of renationalisation, they say, many welcome it. However, so far the jury looks to be out. In the previously mentioned public survey in January, we found that just under a third of respondents (32 per cent) said they felt the ownership and management of utili- ties should rest with national governments; although almost one-quarter (23 per cent) were unsure who would be best placed to run them; and 14 per cent thought utility companies should be owned and operated by private companies. Mutual views Nationalisation, however, is not the only game in town. The idea of mutualisation is growing as a serious alternative to full privatisation. THREE NOT OF A KIND The UK already has form when it comes to di erent types of water business models, with Wales, Scotland and Northern Ireland all operating their own systems. Welsh Water Owned, • nanced and managed by Glas Cymru and structured as a company limited by guarantee, Glas Cymru has no shareholders, allowing any operating surpluses to be "retained or reinvested for the bene• t of customers". Members do not receive dividends, nor do they have any • nancial interest in the company, ful• lling a governance role and holding the company to account. Under the non-shareholder busi- ness model, Welsh Water's assets and capital investment are • nanced by bonds, loans and retained • nan- cial surpluses. In this way, it says, it aims to reduce Welsh Water's asset • nancing costs, the water industry's single biggest cost, by o ering high- quality credit to long-term investors. Scottish Water Scottish Water is publicly owned, "answerable to the Scottish govern- ment and the people of Scotland". Its average household charge in 2018/19 is around £363 a year and during 2017/18, Scottish Water delivered £647 million of regulatory investment. Working with its customers and stakeholders, it has agreed its process and priorities until 2021. Serving a population of 5.14 million, its turnover in 2017/18 was £1.4 billion, with capital investment of £647 million. Northern Ireland Water Government-owned Northern Ireland Water is the country's only supplier of water and wastewater services. The company's sole shareholder is the Department for Infrastructure, within the Northern Ireland Execu- tive, and Northern Ireland Water supplies approximately 860,000 households and businesses. It's 2017/2018 turnover was £431.8—million. continued from previous page Mutual ownership is viewed by some as the best way of reversing the industry out of pri- vatisation, which they say is insuš ciently competitive and weakly regulated. At the end of January, Utility Week reported how during a Westminster Hall debate on the future of the water industry, Labour MP Gareth Thomas called for water companies to be turned into co-operatives that would remain in the private sector and continue to be regulated by what he described as a "more e• ective" Ofwat. His not-for-pro• t model would see: • water suppliers' boards appointed by trusts made up of consumers and employees; • bonds issued to buy back shares in the companies; • trusts underwritten by a government guarantee on loans or debt, providing internal equity reserves to borrow against for large unexpected investment needs; • money replaced over time as trusts accu- mulate pro• ts no longer required to go to shareholders; • boards including elected employee and customer directors; • boards responsible for audit, remunera- tion, company governance decisions and how pro• ts are invested or distributed; • companies protected against demutuali- sation via an asset lock. Thomas, who is chair of the Co-opera- tive party aš liated to Labour, also called for a "full review" of the industry's regula- tion, branding Ofwat "woefully weak" with English consumers carrying "little weight against the interests of distant investors". Speci• cally, he called for the regulator to reduce the cost of equity in its current price review calculations and for a cut in all Eng- lish water customer bills a¢ er "30 years of being used as cash cows by the owners of water companies". Ofwat, he added, should also be given new powers to encourage employee and cus- tomer oversight of the water industry under the new model. Employee and consumer trusts would also have a role in the scrutiny and decision making of Ofwat and appoint- ments to its board. Responding, Ofwat said that through its 2019 price review it had challenged water companies to deliver "more of what matters to customers in the coming decade, by being ever more resilient, eš cient and innovative in the services they provide". "We're con- • dent that the sector can rise to meet this challenge," it said. Thomas's mutualisation theme is looked at in more detail in a column from Addleshaw Goddard on page 11. "From renationalisation to dilution of shares, Labour seems determined to impose rules that display a wilful misunderstanding of business." Carolyn Fairbairn, director general, CBI

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