Why Clean, Affordable Water Should Not Be In The Hands Of Private Companies Targeting Profit - New Research - England Not Scotland

30th August 2022

This article is from The Conversation web site and describes the situation in England for water. Scottish water is still in public ownership and hopefully may that long continue.

Look at what this article says about the English water and then see separately the Scottish Water situation after the main article.

Why clean, affordable water should not be in the hands of private companies targeting profit - new research

England's water companies have come in for some heavy criticism this summer. An extremely dry July has led to drought status being declared in many areas, while 3 billion litres of water are lost through leakage every single day.

Those firms have also come under fire for the pollution they cause, with only 14% of English rivers meeting "good" ecological status. Increasing sewage discharges into rivers and seas is a serious public health issue, with the Environment Agency calling for prison sentences for those responsible for the most serious incidents.

Meanwhile, shareholders and investors have seen significant returns. In the 12 years to 2021, England's nine water and sewerage companies paid out an average of £1.6 billion a year in dividends. Directors' pay too, has soared. The new CEO of Thames Water received a £3.1 million "golden hello" when she joined in 2020.

Our latest research examines the way that private equity investors have come to dominate ownership of England's water companies - and how they operate with considerably less transparency than publicly listed companies and a more aggressive approach to extracting profit.

These high levels of dividends, directors' pay (and debt finance, which could make some of the companies increasingly precarious as interest rates rise) are all paid for by water consumers. Many of these customers struggle to pay, and the cost of living crisis will only put them under even more strain.

Overall then, the English water system works through ordinary households funding generous returns to largely unknown shareholders via complex corporate structures often routed via tax havens, simply through their consumption of water.

So what has happened to regulation in all this? In our paper, we argue that the regulatory process - which in England involves three separate agencies responsible for quality, environmental impact, and prices - faces significant challenges in achieving a fair balance between the interests of investors, consumers and the environment.

Water companies motivated by profit need to be given financial incentives to operate in the wider social interest. The prices they are allowed to charge customers are based on estimates of future costs and achieving certain targets concerning water quality, pollution incidents, leakage and consumption.

This can produce bizarre results. For example, the government wants to see water consumption fall from around 140 litres per person per day to 110 litres by 2050. If this happens, water companies will be able to increase prices. Effectively then, we would all end up paying them a reward for achieving our own reduction in consumption.

Muddying the water
It all adds up to a very unusual business model. After all, it is not as if an unhappy customer can simply choose to get their water from another source.

And our paper shows that the current regulatory structure is no match for the sophisticated practices of private finance. It faces an unmanageable task.

Efforts to tilt the balance in favour of consumers inevitably impinge on investors, and this meets with resistance. Some reports have found a systemic bias toward investors in infrastructure regulation.

No other country has followed the English example, and elsewhere water is largely in the public sector. Paris took its water back into public ownership in 2010 after 25 years of private control. The year after, the unit price of water was cut by 8% as a result of savings due to public management.

Switching to public ownership is not simple, but one recent study suggests it is becoming increasingly popular in Europe. Nor would it be cheap, but in the long run, cost savings are likely with profits reinvested, and public ownership should lead to greater transparency.

The current arrangement is not working. Put simply, it is impossible to mould private profit incentives to meet the public interest in water. As extreme weather events are set to increase, water needs to be in public ownership to ensure that social and environmental outcomes can be prioritised over private profits.

England's water was privatised with an ideological faith in private sector efficiency. But there is a major policy inconsistency in the heavy reliance on the public sector to steer water companies towards social and environmental goals. After 33 years, the private ownership experiment has failed.

This article is from The Conversation web site. To read it with links to more information go HERE

Scottish Water
Scottish Water has been ranked the best UK water company and utility for customer service in the 2021 benchmarking survey by the Institute of Customer Service's latest UK Customer Satisfaction Index (UKCSI). The company attributes this to prior focussing on customers.

History
The authority was founded in 2002 by a merger of West of Scotland Water Authority, East of Scotland Water Authority and North of Scotland Water Authority under the Water Industry (Scotland) Act 2002, an Act of the Scottish Parliament. Because 100 percent of it is owned by the Scottish Government it is considered a statutory corporation.

It has a headquarters in Dunfermline and offices in Aberdeen, Dundee, Edinburgh, Glasgow and Inverness. 3,600 people are employed across the organisation. It has an annual turnover of around £1bn and is funded by charges paid by its customers. Part of its long term capital expenditure is funded by long term loans from the Scottish Government.

National policy is determined by the Scottish Government, to whom the authority reports. The Scottish Government has consulted as to how Scottish Water can work together with Scottish Canals and Caledonian Maritime Assets to achieve additional public benefit from all Scotland's water-related infrastructure, both inland and maritime.

"Quality and Standards" is the planning process that Scottish Government uses to set out areas for improvement. Quality and Standards 3, covered the period from 2006 to 2015, during which Scottish Water were asked to deliver one of the largest capital investment programmes in the UK, including more than 2,000 individual projects.

There are two main elements:

capital maintenance investment- to maintain existing levels of service to customers and to protect the environment, through replacing worn out plant and equipment capital enhancement investment- improvements in performance such as drinking water quality, environmental performance and customer service.

A £3.5bn investment programme for the period 2015 to 2021 was announced on 29 September 2014. Scottish Water's approach to capital maintenance has previously received independent, high level scrutiny.

some aspects of water provision have since allowed involvement from the private sector.

Scottish Water inherited a number of Private Finance Initiative (PFI) contracts for sewage plants which are contracted for between 25 and 40 years. These treat around 45 per cent of Scotland's waste water.

The Water Services etc (Scotland) Act 2005 established a new system of competition for non-household customers. This was passed into law by the Labour-led coalition at Holyrood and backed by the SNP.

This means Scottish Water does not directly manage supplying water to businesses but instead a service provider is chosen. The company added a separate retail arm - Scottish Business Stream.

Audit Scotland report in 2005