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utILIty WeeK | 14th - 20th February 2014 | 21 Policy & Regulation recent Ofwat figures have been added. The table highlights how assumed Waccs are pro- gressively falling, although the ongoing rise in the term structure of interest rates is likely to reverse this trend. It should be emphasised that each indus- try has distinguishing features that limit the applicability of cross-reads. Some are rela- tively minor adjustments but others are fun- damental. While all regulators seek to ensure there is scope to raise capital, through main- taining a minimum investment grade rating, the future capital expenditure programmes are, in some cases, formidable. This scenario explains why Network Rail is treated relatively favourably by the Office of Rail Regulation (ORR). Already weighed down with net debt of c£30 billion, it remains heavily cash negative as it seeks to tackle its vast investment programme. BT, too, has an extensive broadband rollout pro- gramme, which requires substantial funding. While most utility network investment is standard and predictable (the Thames' Tide- way scheme being a notable exception), the capital expenditure budgets at both Heath- row and Gatwick are far harder to determine. Moreover, with the high-profile debate about a new runway at either Heathrow or Gatwick – and with Stansted Airport due to become non price-regulated in April – uncertainties abound. The CAA, sandwiched uncomfortably between the airport owners and the airlines, has no easy task. Tax issues also cloud the horizon. With varying tax profiles, heavy capital allow- ances and some controversial tax avoidance schemes in parts of the water sector, distor- tions are inevitable. But Ofwat's latest pro- posals, which piggy-backed the Competition Commission NIE's re-determination, and the latest CAA initiatives do undoubtedly strengthen the flimsy case law on regulatory practice for Wacc determinations. And if interest rates shoot up – a real pos- sibility – the Wacc regulatory case-book may need serious rebooting. Nigel Hawkins (nigelhawkins1010@ aol.com) is a director of Nigel Hawkins Associates Analysis Sewers suffering from flood defence failures Water firms are accused of not doing enough to stop sewer flooding, but it's not all in their control, says Conor McGlone. L ast month was the wettest January since records began more than 100 years ago – and the deluge is showing no signs of letting up. Amid the whirlwind of Cobra meetings, destroyed infrastructure and devastation to land and properties, accusations are flying that the Environment Agency (EA) and water companies are not doing enough. The EA was first in the spotlight, but a hatchet job from Chan- nel 4's Dispatches last week swivelled the guns in the direction of water companies. The programme outlined how infrastructure investment was static, dividends were spiralling and water compa- nies were allegedly not doing enough to prevent sewer flooding. But companies would beg to differ. Across England and Wales, water and sewerage companies spent £176 million on reducing flooding risk for properties last year – 5.6 per cent of the total gross capital expenditure on wastewater. This figure is set to double this year, according to submissions to Ofwat. It's not even as though water firms have direct responsibility for flood management. These lines of command are Byzantine. Organi- sations responsible for different types of flooding include water firms, local councils and the EA – and oen, responsibilities overlap. When river or sea defences are breached, responsibility lies with the EA, but the consequence of the breach is that sewers overflow. At this point, it becomes the responsibility of the water companies. But as consultant Alan Bland says, sewers cannot be designed to cope with surface flooding caused by the failure of flood defences. Southern Water is at the sharp end of this year's deluge, haemor- rhaging £70,000 a day on keeping its sewers flowing. All it can do, it says, is address the symptoms of flooding by pumping out water and sealing manhole covers, while the malady of extreme weather on top of failing drainage systems and overwhelmed flood defences are the cause – and beyond its control. Another company hit hard by sewer flooding recently, Thames Water maintains that it is working closely with the EA and local authorities. The company, which is currently fighting a £14.1 million fine for alleged misreporting of sewer flooding, says although there is clarity over responsibilities for groundwater and floodwater, it will step in and "get involved" beyond its statutory remit if customers face sewage flooding. A number of recommendations in the 2008 Pitt Review, which could have gone some way to clearing up the confusion, have been dropped. These include the implementation of a "single unifying Act that addresses all sources of flooding, clarifies responsibilities and facilitates flood risk management", which was omitted from the 2010 Flood and Water Management Act. A proposed Cabinet Committee to deal with flooding never materialised. Bland says everyone knows what they are supposed to do – they just don't always do it. For exam- ple, planning authorities gave the green light to build more than 38,000 homes on flood plains in England in the ten years to 2011. When it comes to flooding, water companies have limited respon- sibilities and even less control.