Utility Week

UTILITY Week 30th June 2017

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

Issue link: https://fhpublishing.uberflip.com/i/842661

Contents of this Issue


Page 26 of 31

UTILITY WEEK | 30TH JUNE - 6TH JULY 2017 | 27 Customers Nor did Robertson shy away from acknowl- edging the controversial missed leakage tar- get and the "tricky" light in which it placed the company's decision to deliver a £100 mil- lion dividend payment to shareholders. Ofwat's £8.6m leakage penalty was a "salutary measure" that has been "taken very much to heart", said Robertson. There is now a determination to work "smarter" to ensure the end of the asset management plan (AMP) leakage target is met. It's an ambition that will be delivered through greater use of satellite data and drones as well as process and policy reviews to target efficiency and improve handling of customer-side leakage, which Robertson said accounts for about 30 per cent of Thames's leakage challenge. On the dividend distribution, Robertson judiciously articulated the need to contex- tualise the payment. His chief finance officer Brendan Rennet – another new joiner on the Thames executive team – backed his boss up, saying the decision was robust, despite the difficult political environment. "The equity holders obviously form an essential part of the capital structure, and we need to be able to provide a reasonable and justified return for them over the [AMP] period," said Rennet, adding: "If you look at the cash yield, it's about 2.6 per cent from the last year, which is lower than you would probably expect to see from a comparable listed company." Vampire vanishes All that said, both Rennet and Robertson diplomatically suggested that a new mix of investors at Thames – the so-called "vampire kangaroo" Macquarie sold out to a consor- tium led by Borealis Infrastructure in March – should allow for more focus on customer outcomes over investor returns in the future than may have historically been the case. "With the change in ownership, about two-thirds of the investor base is now made up of pension funds, which are inherently long term in their nature," said Rennet. More specifically with regards to Borealis, Rennet said his experience of working with this "responsible" shareholder in previous roles gives him confidence. They are "very focused on the needs of the wider stake- holder group", he said. So Thames's executives seem to be mak- ing the right conciliatory noises to appease regulatory concerns. And Robertson is cer- tainly making no attempt to shirk responsi- bility for the possible sins of his forefathers in the chief executive's chair. On the contrary, recalling his appearance in court in March when Thames was issued with a record fine of £20 million for six pol- lution incidents, Robertson – then just six months into his job – said: "It makes no dif- ference to me whether I'm the new CEO or the old CEO. As the CEO of the company you take accountability for the performance of the business. And not just in the few months that you've been there." Is there the will? So far, so good. But Ofwat will be looking for more than a can do attitude from Thames now. It will want it to proactively adopt Cox's five-point plan and execute a rapid turna- round in performance for customers. But it's here that Robertson's words become less promising for a happy ending. For all his assertive talk of management shake-ups and "drains-up" meetings to uncover root causes for leakage and pollu- tion, he was cautious about promising too much change in the short term. Thames must "accept where things have gone wrong, be clear about how we are going to remedy them" he said. But he also pointed out: "We need to understand in an infra- structure business, from the point where you start to fix things to the point where they are fixed, there can be quite a lot of water under the bridge." On leakage, Robertson said: "When you get a miss like this it is very unusual to turn on a sixpence and get back to target. In the meantime, I would not be surprised if there's another miss – next year for instance." It's doubtful whether Cox, or other regula- tors and former regulators who have unhap- pily gnashed their teeth over Thames's performance for years will have much truck with this view. Speaking to Utility Week, one regulatory leader damned Robertson's promise of a "long-term recovery process" with continued shortcomings in the interim as "weak". It's a view others have echoed. Robertson needs to accelerate his time- table for positive change, aligning it with Ofwat's explicit expectations. If not, his efforts are likely to be condemned as too lit- tle, too late. THAMES WATER ODI FAILURES 2016/17 Outcome delivery incentive (ODI) Penalty Condition of below-ground water network (includes supply interruptions of over 12 hours) £4.7m Security of supply index £2.3m Leakage £8.6m Sewer flooding/other causes £0.5m Sewage treatment works discharge compliance £2.3m Total £18.4m Opinion Is Thames Water fit for purpose? Former Ofwat boss Ian Byatt says company must change – or be broken up. I was delighted to see Jonson Cox's article in last week's Utility Week, showing that Ofwat is acting firmly to protect custom- ers and the environment. The failings of Thames Water go back a long way. When I was running Ofwat, Thames had a level of leaks from its supply system way out of line with other companies. My successor had to push the company hard to spend the money needed to do what it should have done to reduce them. The level of infiltration from groundwater, some 50 per cent of dry weather flow, into the London sewerage system is much too high. Pollution incidents have been excessive, with the company recently incurring a record fine of £20 million for pollution described by the judge as "borderline deliberate". Customers are now paying higher bills to finance an extravagant £4 billion tunnel under the Thames. Where Thames Water has performed well, however, is for its global shareholders, and for its senior management, paying massive dividends and huge salaries. Inferior service has been handsomely rewarded. There is now a new owner and new senior management. Will they be able to turn round this unhappy performance? Cox sets out five next steps for the company, all of which I consider essential. I hope all these will be properly implemented in the spirit of reform. If not, the public interest points to breaking the company up into more effective units, perhaps separately listed and reparably licensed companies covering the different issues found in London and Oxfordshire. "Inferior service has been handsomely rewarded at Thames Water"

Articles in this issue

Archives of this issue

view archives of Utility Week - UTILITY Week 30th June 2017