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Stemming the flow, by David Meilton

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28 October 2005

Water companies' services are almost perfect, says the regulator. But with almost 4,000 million litres of water wasted through burst pipes and leakages every day, David Meilton begs to differ

There are few more beguiling prospects than a mountain stream tumbling its way down through rocks on a verdant hillside. When it is gushing down your high street at a thousand litres an hour, the charm quickly evaporates.

According to the latest figures, recorded leakage in England and Wales in 2004/05 averaged 3,609 million litres a day. That's several Niagaras every half an hour going down the drain.

Nonetheless, the industry regulator, the Office of Water Services, has a good news story to tell. Its latest report, published on September 28, Levels of service for the water industry in England and Wales 2004/05, insists that all 23 water companies are 'approaching the maximum score' in its overall performance assessment (OPA).

The number of properties at risk of low water pressure fell from 9,400 in 2003/04 to 7,400 in 2004/05. The number of properties affected by unplanned and prolonged interruptions to supply (defined as more than 12 hours) decreased to 15,400 from 32,500 the previous year. Of these, 6,800 were caused by an exceptional storm in the Northumbrian region that swept away the two mains supplying Hexham.

Floods last month across the English Northwest and much of Wales are similarly likely to skew the current year's figures. In 2003/04, too, the vast majority of such supply cuts – 26,300 – were caused by just three large water main bursts in the Thames region, which were complicated and time-consuming to repair, the regulator says.

The number of homes at risk of internal sewer flooding at least twice in ten years remained stable at 3,100; 6,400 properties were at risk of sewer flooding once every ten years, compared with 6,800 in 2003/04.

In addition, the quality of drinking water – as monitored by the Drinking Water Inspectorate – is almost perfect, and 99% of bathing waters met mandatory standards.

Ofwat's director of competition and consumer affairs, Tony Smith, says: 'We are naturally very pleased to see the companies are generally maintaining their high standards of service. But we will continue to work with the Drinking Water Inspectorate and the Environment Agency to monitor the companies closely.'

More jaundiced observers, especially those with the mountain stream in the high street, might raise questions over the marking criteria. As with A grades at A-level – if everyone is getting top marks, what are they worth?

'I understand the A-level analogy,' says Zoë Howard, Ofwat's spokeswoman. But her answer is much the same as you'd get from the Department for Education and Skills. 'I am pretty sure that they [the water companies] have all improved so much in recent years over previous OPA marks, and that is why they are nearing the maximum score. It may be that we ought to revise those benchmarks upwards, though we have not thought of doing so yet. We wouldn't want to be unfair on the companies.'

As a result of regulation, says Ofwat, the industry has achieved huge improvements across a range of services. Water companies are investing £5.5bn over the period 2005 to 2010 (more than £3m every day), we are told, to improve drinking water and protect the environment. The investment between 1989 and 2010 will be more than £65bn.

In 2005, the average daily cost for water and sewerage services is 76p for households. A litre of tap water, supplied and taken away, now costs just 0.17p. Ofwat's price limits mean water bills should not rise by more than 3.1% a year above inflation. The next price review will be in 2009.

But the latest leakage report, published in July, paints a bleak picture.

True, only two companies – Thames Water, losing 915 megalitres per day (a megalitre is 1 million litres) and United Utilities, losing 500 – missed their 'targets', set by Ofwat after consultation with the Department for Environment, Food and Rural Affairs.

Ofwat head Philip Fletcher, the director general of water services, seems modestly content, even though he describes leakage in London as 'unacceptably high'. 'I am pleased that total leakage has fallen. However, I am still concerned about the situation in the Northwest and especially in London. I now have the power to fine a failing water company – I should not hesitate to use these powers if I thought that a company was not complying with its duties.'

Environment minister Elliot Morley says it is 'frustrating' to see water being wasted, given the recent low rainfall. 'Increasing demand for water and the effects of climate change are placing greater stress on our water resources. We are urging consumers to use water wisely and efficiently, so I look to Ofwat to ensure that water companies match their efforts and continue to reduce their levels of leakage.'

Ofwat is currently in the throes of change. Its first preoccupation is with the new competition framework being introduced this year. But, for most customers, the new regime will make no difference. The Water Act 2003 might have been designed to create more competition, but it is limited to very large business customers, those who are likely to use at least 50 megalitres of water a year, like large health service trusts, big industrial sites and universities. From December 1, these customers will be able to choose their water supplier from a range of new companies entering the market.

Unlike gas and electricity, under current legislation household water customers cannot shop around among water suppliers to save money on their bills. This is because the water industry is made up of local and regional monopolies and there is no national grid to transfer water between networks.

Zoë Howard of Ofwat says: 'They are discrete water resource areas, and logistically it would be hugely complicated and not economically feasible to transport water round the country and deal with it on a national basis – which is the only way that competition could be introduced for the individual household.'

The water shortages have not only led to hosepipe bans – several small water companies have already imposed some restrictions – but have reignited the debate on whether more houses should have water meters installed. One company, Folkestone & Dover, has already applied to the government to allow it to force its customers to install meters, and more could follow if rain levels do not return to normal this winter.

Ofwat itself is to transmute into the Water Services Authority from April 1, 2006. 'We don't really know what difference it will make to the operation until the details are published. What it does do is abolish the office of director general of water services and transfer the decision-making power to a board of directors with a chair, which should make it more accountable,' says Howard.

This process has already occurred in Scotland, where water is a separate fief. But, unlike in England, it remains a nationalised resource, under the banner of Scottish Water, formed on April 1, 2002 by merging the three previous water authorities. Its regulator, the Water Commissioner, was abolished on June 30.

After initial criticism of Scottish Water's pricing policy, Audit Scotland this month praised it for improving efficiency and significantly cutting operating costs. The utility has also streamlined the industry, including reducing its workforce by almost 2,000, the watchdog said. But it also reported that the nationalised body fell short of the customer performance of the privatised companies in England and Wales.

Ofwat's consumer arm, Watervoice, with its volunteer regional committees, has also now disappeared. On October 1 it became the Consumer Council for Water, under a newly appointed chair, Dame Yve Buckland. She says: 'The alarm bells continue to ring over the future of water resources following a year of drought, and over the affordability of water bills.'

But she promises: 'CC Water will be vocal and visible for consumers. Water consumers have no right of appeal over price rises and they can't exercise choice, so there is a very important role for a consumer representative body.'

Buckland sees a series of challenges ahead, including the metering issue, and the implementation of the European Union Water Framework Directive, agreed in December 2000, which requires all inland and coastal waters to reach 'good status' by 2015, with demanding environmental objectives.

But she believes the system of regulated private monopolies in England and Wales is beneficial for customers. 'You have only to look at the quality and service improvements that have been made to say the current system has delivered,' she says.

The companies themselves are not complacent. Thames, the UK's largest water provider, supplying more than 8 million households in London and much of the Southeast, missed its leakage target for the third year running.

But Mark Simister, leakage strategy manager, says the company is starting to make real progress. 'Our leakage level today is at its lowest since late 2001,' he says. 'Reducing leakage remains our top priority.

'We began a major programme to replace our oldest and leakiest mains three years ago, and have since renewed 140 miles of pipes. We aim to accelerate this work, to lay a further 850 miles over the next five years at a cost of more than £500m. We are repairing an average of nearly 200 leaks a day, or more than 70,000 per year.'

London is seen by the regulator as a special case, because of the ancient cast-iron pipe network it inherited, which is particularly vulnerable to leaks – especially when combined with the clay subsoil the capital sits on.

United Utilities was the only other big firm to miss its leakage reduction target. It supplies water to about 6.9 million people in the Northwest – stretching from Cumbria to Cheshire. John Barnes, its chief operating officer for water, says: 'Although it is disappointing to miss our target narrowly, this has not affected our ability to keep water on tap. There is no water shortage in the Northwest and we have no plans to impose restrictions.' He says the company has reduced leakage by almost half since the 1990s.

But reducing leakage will not be enough by itself to ensure future supplies, Buckland says, in the face of flood risks and increasing consumer demand. 'If you look at the water shortages in 2005 and think what it will be like in 15 years' time, when there will be another 1.1 million households in the Southeast, we clearly can't sit around arguing between ourselves. Something has to happen. Simplistic solutions to managing water resources won't work.'

PFoct2005

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