Utility Week

UTILITY WEEK | 29TH NOVEMBER - 5TH DECEMBER 2019 | 17 Policy & Regulation attractive – perhaps more than they should have been. Colin Skellett, chief executive of Wessex Water, believes the early days of regulation le holes vulnerable to exploitation by a handful of investors. "If the regulator had said the balance sheet could only be used for core regulated activities, then everyone now would prob- ably say privatisation has been a great suc- cess. But the regulators took the opinion that capital structures were for the companies not for the regulator. Debt, gearing and asset val- ues were le down to the companies." High gearing has come under criticism from the regulator for the benefits it offers companies but not customers. Former envi- ronment secretary Michael Gove called the practice "deeply concerning" and called on Ofwat to press companies to change their behaviour. One commentator argues that Ofwat is now trying to turn the clock back. Going too far? Has the regulator now overcompensated for its perceived leniency by taking an unrea- sonably tough stance? The responses from the majority of the 17 water companies in England and Wales show widespread alarm at what the regulator is asking for. So while some praise the strength of the regime, oth- ers think it has gone too far. Bob Taylor, chief executive of Portsmouth Water, says Ofwat has driven improved effi- ciencies, reductions in leakage and huge improvements in customer service. "Although bills have gone up, the indus- try as a whole has become much more effi- cient. The strength of the regulatory regime is the key to that," Taylor explains. "We get strong leadership from regulators, but the sector also needs flexibility and room to manoeuvre. Success comes from a combina- tion of both." This view is echoed by Peter Simpson, chief executive of Anglian Water, who says pushing companies to exceed expectations results in real savings, which can be passed on to customers. "We've been incentivised to drive effi- ciency since 1989 so customers get a lot more from the company," Simpson says. "The model is very powerful and better than mod- els I've experienced working in the US – I don't think they drove the same efficiency to manage the assets that we've got here." However, some companies, while acknowledging the need to be set challeng- ing targets, think the current hurdles mean anything less than excellent results in unrea- sonable penalties. One chief executive tells Utility Week: "Ofwat is there to mimic competition, so it will always look around and see what the standards or benchmarks are. It is doing that, but it's gone too far and is trying to argue that unless a company is perfect it will be penalised." "The industry en masse is saying: you've gone too far. Yes, it's right to push us and yes, we want to do right for our customers, but asking us to suddenly be instantly per- fect is too much and unrealistic. Point to where it happened ever, and we might have an argument about it." Critics argue that the number of men- tions of appeals to the Competition and Markets Authority (CMA) show how extreme Ofwat's review is. "It's very surprising for the whole industry continued overleaf H3O This month marks 30 years since shares in the water and sewerage companies of England & Wales were first floated. To mark the occasion, Utility Week has launched H3O, a series of articles featuring insight from industry leaders and expert commentators reflecting on the journey to date and the challenges ahead. The campaign, available in full to Utility Week members, covers industry views, progress on the ambitious Public Interest Commitments, the opening of the non-domestic market and the threat of nationalisation. To get full access and to find out more about the benefits of membership to you and your team please get in touch on 01342 332077 or JoNikiforov@fav-house.com

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