Underperforming water utilities have been in the news in the past week.
Owl reviews a number of news articles, and in a separate post, looks at South West Water’s performance.
Up to £40bn to plug leaks in coming decades
A national hosepipe ban should be implemented as a national priority along with compulsory water metering across the UK by the end of the decade.
That is the key message that infrastructure advisers have given the government as the nation braces itself for a drought that is threatening major disruption to the nation. Failure to act now would leave Britain facing a future of queueing for emergency bottled water “from the back of lorries”.
The government was warned four years ago by the National Infrastructure Committee (NIC) that considerable new investment would have to be made in the nation’s water supply equipment by the 2030s. Although some improvements have been made by water firms, nearly 3billion litres of water is still lost every day.
Plugging these leaks will require an investment of around £20bn, Sir John Armitt, chair of the committee, told the Observer this weekend. Failure to invest now will mean, he added, that more than twice as much will have to be spent on distributing bottled water to UK residents by lorry as increasingly frequent droughts grip the nation.
“You have to pay for it, one way or another,” he said. “That could be investing in new reservoirs or moving water around the country, as well as stopping leaks.” Water metering is considered by the industry as the best tool for cutting water use – the UK has the highest usage in Europe. It is estimated that water meters have been installed in only about half of households in England and Wales, but these customers use 33 litres a day less than the national average, of 141 litres a day.
Who are the big leakers?
The country’s nine water companies are leaking almost 2.4 billion litres of water every day while paying their chief executives large bonuses…
In the past two years the chief executives of England’s water companies were paid a total of £24.3 million.
Dame Meg Hillier, the Labour MP who chairs the public accounts committee (PAC), said: “It sticks in the craw that the chief executives are earning telephone-number salaries while their businesses are leaking billions of litres of water.”
Thames Water, England’s largest water company, was the biggest culprit, leaking 605 million litres of water a day, based on a three-year average. The company, which serves areas including Greater London, the Thames Valley, Surrey and Gloucestershire, said it was leaking 24 per cent of its supply. Sarah Bentley, its chief executive, received £3.2 million in the past two years.
Severn Trent Water, which serves the Midlands, leaked the second most, with a three-year average of 446 million litres a day. Liv Garfield, its chief executive, has earned almost £7 million since 2020, making her the highest-paid executive in England’s water industry.
United Utilities, which serves northwest England, leaked the third highest amount, with 413 million litres of water a day. Steve Mogford, its chief executive, earned almost £3.2 million in the past year, including almost £2.2 million in bonuses and incentives.
In 2020 the PAC published a report that warned Britain could run out of drinking water by 2040 if more were not done to protect resources. Hillier told The Times: “This amount of leakage is unacceptable. We know it does not happen overnight but these companies should be doing more.”
According to the PAC report, the industry regulator Ofwat, the Environment Agency and the Department for Environment, Food and Rural Affairs have “taken their eye off the ball” on reducing water loss and repairing leaks, with “two decades of inaction” responsible for the impending crisis.
The committee said it remained unconvinced that enough would be done to address the problem. Ofwat said: “We have really pushed companies to cut leakage and set a target of 16 per cent reduction for all companies. While progress is being made, companies have to go further.”
Water UK, which represents the industry, said reducing leakage was a huge challenge: “Water companies are committed to doing everything they can to radically reduce leakage over the coming years and decades with plans in place to halve leakage by 2050.”
Thames Water declined to comment. Severn Trent said: “We’re committed to reducing leakage by 15 per cent by 2025 — the biggest reduction ever in a five-year period — and we’re making good progress.”
United Utilities said: “We have the lowest ever levels of leakage in the northwest and have met our target for the 16th year running. Between 2020 and 2025 we are reducing leakage by a further 15 per cent.”
Failing to meet targets, including South West Water
A quarter of water companies in England and Wales have failed to meet targets for reducing wasteful mains leakage as millions of Britons face a hosepipe ban amid the driest conditions for decades.
The latest findings by Ofwat, the regulator, show that, while leakage has come down by 11 per cent in five years, only three quarters of water companies are meeting their individual leakage targets, which were brought in because a fifth of mains water was being lost daily.
[Including South West Water which admits “we are below the industry average for our leakage performance this year” – see separate post on how bad it is – Owl]
The watchdog insisted that “progress has been made” on leaks but admitted “there is more that can be done”.
The underperforming utilities companies will be named later in the year and could be penalised financially. David Black, Ofwat’s chief executive, said: “We welcome the improvements companies have made in reducing leakage and it’s encouraging to see things heading in the right direction…
Debt-ridden water giants at risk from rate rises
Heavily indebted water utilities are at greater risk of collapse as interest rates rise, the industry regulator has warned….
“As interest rates rise … we tend to see the cost of poor investment grade debt, or poor-quality debt, go up faster than the cost of higher-rated debt,” Black said. “So water companies that are in a poor financial position will experience escalating costs of debt faster than better-financed companies.”
Water companies have attracted widespread criticism for loading up on debt while paying large dividends to their shareholders — many of them based overseas — but failing to get on top of leaks or sewage spills. Last week, Ofwat revealed plans to limit dividend payouts for companies with the lowest credit ratings.
Black said concern over the burden of higher rates was one factor in introducing the tighter controls: “We’re always concerned about the risk of a company failing and costs coming back onto customers.
“We want to make sure that the focus of company boards is on running these businesses well, and not on clever financing structures.”
His warnings raise the prospect of a similar failure in the water industry to that of Bulb Energy, the supplier that collapsed last November. Bulb went through a “special administration”, where the taxpayer provides funding to keep it going before a buyer is found. If a water company failed, it would also go through a similar process. Bulb’s collapse is expected to cost the taxpayer as much as £3 billion.
Net debt in the water sector topped £56 billion last year, according to Ofwat. One of the most indebted firms, Thames Water, took steps to shore up its finances last month with the injection of £1.5 billion of fresh equity from shareholders…
Debt written off in 1989
[When Margaret Thatcher sold off the water industry in 1989, the government wrote off all its debts. Since then, the nine privatised companies in England have run up debts of nearly £52 billion. Meanwhile, they have paid shareholders a total of £61.8 billion in dividends, an average of £2 billion a year.]
Tory dogma “working for us” – Owl