Water companies enraged that OFWAT is putting consumers before investors

“Top investors in the water industry have complained to the Treasury that the regulator Ofwat is being politicised and warned of a flood of appeals against its financial demands.

International investors that control suppliers including Anglian, Yorkshire, Affinity, South East and South Staffs led a delegation this month ahead of a crunch ruling on prices by Ofwat, due in December. They are reeling from the toughest draft settlement from the regulator in years and fearful of Labour’s pledge to renationalise the sector at a big discount to market value.

After years of taking huge dividends from water companies and piling debt onto them, while paying minimal corporation tax and overseeing scandals such as sewage spills and water leaks, utility investors have seen the industry and political environment turn toxic.

Ofwat, chaired by former Anglian Water boss Jonson Cox, stunned the sector in July when it rejected the spending plans of all but three companies and sent the other 14 back to the drawing board, demanding more efficiency, faster paydown of debt and better customer service. It will publish its final ruling on their 2020-25 spending plans in December.

The meeting on October 14 is believed to have included blue-chip investors such as German insurer Allianz, Singapore sovereign wealth fund GIC, Deutsche Bank’s wealth division and Australia’s IFM Investors. Among the issues raised was Ofwat’s independence and the dangers of it reacting to political pressure.

Cox has been on a crusade to clean up the sector. In an interview last year, Cox told The Sunday Times: “This industry still doesn’t accept that customers should be at the heart of this business. We are unwinding one of the last bits of the pre-crash bonanza: buying an asset and gearing it up.”

Investors also asked senior mandarins whether the Competition and Markets Authority had the resources to deal with simultaneous appeals against Ofwat’s financial stipulations. At least five suppliers are believed to considering appeals.

The funds called on the Treasury to assess the financial resilience of the sector, after companies including Thames and Northumbrian complained that Ofwat’s demands were “unfinanceable”.

Global investors have ploughed billions of pounds into former state-owned companies since the privatisation wave of the 1980s and 1990s, yet are increasingly reassessing whether the UK is still an attractive place to park their cash.

Ultra-low interest rates and the need for returns inflated asset values and led to a bidding war for infrastructure companies. However, the appetite for water companies has cooled over the past two years. The Sunday Times revealed in April that Labour planned to renationalise the industry at a big discount to market value, making deductions for “asset-stripping since privatisation”.

That and Ofwat’s clampdown have spooked local authority pension funds, which have belatedly begun pouring cash into infrastructure. GLIL, which invests the pensions of council staff, was among the attendees at the Treasury meeting.

Last month, Alain Carrier, European boss of the CAN$400bn (£239bn) Canada Pension Plan Investment Board, which owns a stake in Anglian, said: “It’s difficult for the regulator under the current political climate not to be seen to be very tough. The independence of the regulator is under some pressure.”

Ofwat said: “Our decision-making is independent from government and based on delivering the very best for customers. Investors have always made clear they value the independence of the regulatory regime.”

Source: Sunday Times (pay wall)

“Rivers used as ‘open sewers’, says WWF charity”

As a district well-provided with rivers and estuaries, a worrying issue:

Targets for 75% of rivers to be healthy by 2027 are “very unlikely” to be met in England, a charity has warned.

The World Wide Fund for Nature (WWF) says rivers are “used as open sewers”.
The Environment Agency predicts 75% of rivers in England and along the Scottish and Welsh borders will meet EU expectations by 2027, compared with just 14% now.

It is planning an autumn consultation on “challenges and choices” faced in cleaning up water. The agency said it would review the target based on “what can realistically be achieved”.

Sewage discharging into rivers has been one of the most common reasons for ecological health tests being failed, while water companies in England have been told their efforts to protect the environment were “unacceptable”. …”

https://www.bbc.co.uk/news/uk-england-49131405

“One in 10 [South West Water] pollution incidents in 2018 happened in East Devon, figures reveal”

“An Environment Agency (EA) report on the performance of water companies at managing pollution levels said South West Water (SWW) had a total of 98 incidents in 2018 per 10,000km of sewer.

An FOI request made by the Journal has revealed that 14 of those happened in East Devon.

Four of these incidents happened in Honiton – three of them over a 20 day spell in January 2018.

Axminster had four relating to the River Axe and the River Yarty.

Exmouth and Ottery St Mary had two each while Sidmouth and Woodbury had one.

SWW, which had the most pollution incidents in 2018 of nine companies across the UK, said it achieved the best wastewater performance last year but recognised there is still more work to do. …”

https://www.exmouthjournal.co.uk/news/locations-of-2018-pollution-incidents-revealed-1-6191933

South West Water – the great consumer con

“South West Water’s half-baked plan won’t cool nationalisation fever

Guardian: Nils Pratley Tuesday 4 Sept

Utilities company’s plan to give customers free shares equates to only £25 per household.

One can guess at how the thinking went in the boardroom at Pennon, owner of South West Water. The Labour party is threatening to nationalise the water industry, so let’s try to defuse some tension by giving customers free shares. We’ll call it “a new deal” and talk about “empowering” people.
Up to a point, one can understand the idea to do something eye-catching. The shadow chancellor, John McDonnell, has yet to explain how he would pay for his plans, or which of the many versions of public ownership he prefers (two big oversights), but he has definitely tapped into resentment with the current privatised model in England and Wales. Water companies know they are seen as greedy and unaccountable. It is why, as they unveiled their business plans for the next five-year regulatory period, many announced various “partnership” ideas that were nods to the nationalisation debate.

Pennon’s plan, however, looks half-baked. It apparently polled strongly, but one wonders if the researchers described a worked example. The company plans to offer customers a shareholding, or “shadow” shareholding, worth £20m, which sounds vaguely impressive until you realise it equates to £25 per household for the 800,000 households in the south-west. At Pennon’s current share price of 755p that means three-and-a-bit shares each, which would be hideously fiddly to administer.

As for the claim that customers will “be able to receive a share of the company profits as shareholders do”, punters should know that Pennon’s shares currently yield 5%. So the starting dividend income on a £25 holding would be about £1.25 a year, not always enough for half a pint of beer in a Cornish hostelry. Such tiny sums probably wouldn’t convert many waverers to the joys of privatisation. Pennon tends to be more open than most of its breed, but this looks like a gimmick that could easily backfire.

Rivals kept things simpler. Thames, whose financial engineering, pollution and leaks have done most to excite nationalisation fever, said its private owners would have to accept lower dividends while an extra £2bn is spent on infrastructure. Severn Trent said it would give 1% of profits to a “community fund”. Both approaches ignored soaraway boardroom pay, another source of complaint, but at least they are easier to understand than token shareholdings.”

https://www.theguardian.com/business/nils-pratley-on-finance/2018/sep/03/customer-shareholding-plan-for-south-west-water-is-half-baked

South West Water “in special measures” due to pollution incidents

The Environment Agency is introducing special measures for South West Water until it better protects the environment.

It comes after the firm came significantly below its targets for pollution incidents, the EA said.

The supplier must improve its performance according to a “Water and sewerage companies’ performance” report.

The EA says that last year the company was responsible for 115 major pollution incidents (including serious sewage leaks) – the next highest number from a supplier was 46.

The agency has ranked South West Water’s performance as significantly below target.

The Environment Agency also gave the company a two-star rating, meaning that it requires improvement.

An EA spokesman said: “We expect South West Water to make significant improvements to their environmental performance.

“They have not done enough to reduce pollution incidents and have repeatedly scored badly on this metric compared with other companies.”

South West Water said: “We continue to invest and innovate – for example, through using cutting-edge technology to monitor our sewerage network, and purchasing a fleet of fully-equipped rapid response vehicles to enable staff to undertake sewer cleansing, surveying and reporting in one visit.

“This will help our response times and management of pollution incidents as we seek to drive numbers down.”

http://www.devonlive.com/south-west-water-put-into-special-measures-after-topping-pollution-pills-table/story-30437348-detail/story.html