Utility Week

20 | 8TH - 14TH DECEMBER 2017 | UTILITY WEEK Operations & Assets Analysis N agging doubts about the legitimacy of private utilities delivering public services have reached feverish levels. And water companies, which had largely managed to avoid the damaging effects of the trust deficit that has gnawed at the energy sector in recent years, now find themselves at the centre of the ferment. Defending their existence and purpose, the companies argue privatisation has deliv- ered huge benefits to customers and society. Water UK insists productivity in the sector has seen a 64 per cent improvement since 1994, having grown annually by an average of 2.1 per cent, and company leaders point to measurable improvements in water quality, infrastructure efficiency and environmental care since privatisation. However, such defences are being drowned out by Labour's calls for renation- alisation and wider attacks on the complex financial arrangements many water compa- nies have established, which critics claim lack transparency and justify a public sense of mistrust in the institutions providing their essential services. Labour insists its plan for renationalising water – by creating nine public bodies to run the water and sewerage system in England – would reduce average household bills by up to £100 per year at the same time as restoring trust. Battle lines With Labour currently level pegging with the government in the polls, the scope for renationalisation to become a reality is very real, and a poll conducted by the think-tank Legatum Institute and Populus following this year's snap general election suggests the party may have struck a chord with the pub- lic. The survey found 83 per cent of respond- ents back the renationalisation of water. And as the battle lines against privatised water form, the regulator has not rallied to the sector's side. Instead, Ofwat has struck an overtly combative stance, squarely sid- ing with the interests and concerns of the consumers it is bound to protect, and firing some scorching criticism at companies for failures in transparency, efficiency and – ultimately – legitimacy. The regulator's chairman, Jonson Cox, has led the charge. At Utility Week Congress in October he argued that failures made by big water firms had "tarred" the whole sec- tor, and insisted companies must avoid just talking about how good they have been in the past. "Customers don't give a damn about that," he said. "That's what they expect." Instead, he suggested, companies should think carefully about the impression they project to the public with their "highly complex, offshore capital structures". Attacks like this have not gone unheeded by the water sector. And instead of remaining staunchly defensive, some have made moves to adapt to the clearly changing expecta- tions of the world around them. Yorkshire Water and Thames Water, for instance, have both announced their intentions to close their financial arrangements in the Cayman Islands, with Yorkshire promising further action to reduce borrowing and enhance its financial simplicity. Meanwhile, Thames timed the announce- ment of its intention to close its Cayman Islands set up to go hand in hand with the revelation that ex-SSE chief executive Ian Marchant will become its new chairman in 2018. The utilities veteran has been charged with leading a wide-ranging review of the company's corporate structure. But are such actions too little too late? As water companies scramble to polish their tar- nished legitimacy in the eyes of politicians, the regulator and the public, Utility Week asks some of the sector's most prominent leaders to explain exactly why privatisation is good for customers. Legitimate questions Water companies have been forced to defend their legitimacy as private enterprises providing essential services. So what do they have to say for themselves? Katey Pigden finds out. Chris Loughlin, chief executive, Pennon Group (South West Water) "We're proud of what South West Water has achieved and the facts speak for them- selves. At the end of the 1980s the govern- ment of the day recognised that it could not fund the investment required to meet the new environmental standards. The answer was the privatisation of regional water companies, which were then able to raise money from shareholders and banks to spend on redressing decades of neglect and underinvestment in the networks. The result has been a transformation in service standards. In the South West alone, we have invested £7 billion in new and improved infrastructure, innovative new technologies and better ways of working. This includes a much-needed clean-up of the region's coastal waters, without which our local ecosystem and economy would undoubtedly have suffered. Today, the visitor economy of Cornwall alone is worth £2.8 billion and supports 55,000 jobs. "Since privatisation, customer satisfac- tion with South West Water has steadily risen to record levels, drinking water quality is excellent and leakage has reduced by 40 per cent. The average bill is less than it was ten years ago and will rise below inflation to the end of the decade while we spend a fur- ther £1 billion on delivering a business plan shaped by customers. And it doesn't stop there. We estimate a further £6-9 billion of investment is needed by 2050. "Would this have been delivered if the water industry had remained in government hands? How would we have fared compet- ing directly with other vital services such as health and education while we also struggle with rising national debt? "We must never be complacent. There is always more to do. We must tackle the chal- lenges of population growth and climate change, we must sup- port the growth of our great region and we must continue to invest in the infrastruc- ture of the future."

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