Inside scandal of watchdog that let firms make MILLIONS & rack up BILLIONS in debt while water service went down gurgler
THE water regulator tried to style itself as the people’s champion this week after telling monopolies they couldn’t increase their bills by as much as they wanted.
Shall we pour a glass of murky river water for the toast?
Their supposed heroism pales into insignificance when you consider how much excessive debt, bad management and decades of underinvestment have gushed under the bridge on Ofwat’s watch.
Let’s not forget, either, that this year alone, households in Brixham, Devon, had to boil their tap water for almost two months after a sickness and diarrhoea bug in South West Water’s supply.
Or on the other side of the coast, how Southern Water’s burst pipe cut off 30,000 homes and local seaside businesses who were relying on bank holiday trade.
Or how about the Oxford/Cambridge boat race — an event watched around the globe and meant to whip up national pride — which ended up with rowers chucking up from E. coli caused by sewage in the river?
And finally, that our biggest supplier, Thames Water, is up to its neck in the brown stuff, literally and financially.
Households across the country have been held hostage because, unlike pretty much every other industry, consumers have no choice of switching to another supplier if bills become unaffordable or service standards substandard.
It is a postcode lottery depending on how spread out a town’s population is, and if there is a coastline or not.
‘In dire need’
For example, Ofwat’s verdict on bill increases, announced on Thursday, will mean customers of Southern Water, which serves West Sussex, Kent, Hampshire and the Isle of Wight, will be paying £143 more than Tyneside and Wearside households, which are served by Northumbrian Water, by 2030.
Water companies were privatised in 1989 with zero debt. Now they are drowning under debts of a combined £60.3billion. And it was Ofwat which allowed this.
The regulator didn’t blink when debt started to be piled on because the borrowings — leverage — were meant to fund investment and it kept bills low.
However, the infrastructure investment was dwarfed by the amount of debt added on to water firms’ balance sheets to afford eye-watering dividends.
And corporate greed by Thames Water’s previous owners means we are in a situation where its debts are worth 80 per cent of its value.
And because debt is not the same as cash, not much money went into investing in these utilities of utmost importance.
Since then, debt costs have jumped, a growing population has meant more people flushing waste into our waterways and extreme weather has left the creaking pipes in dire need.
Water firms argue they must charge higher bills to invest in finally building more reservoirs and fixing pipes and storm overflows to counter sewage spills. But a lot of the investment promises made five years ago — the last time Ofwat went through this hoo-ha — were not kept.
We are told we should be pleased Ofwat stopped water companies charging us twice
We are told we should be pleased Ofwat stopped water companies charging us twice.
‘Good deal for shareholders’
But surely it shows how bad Ofwat’s own monitoring is that it found that a quarter of a billion pounds of infrastructure spending by the water companies was not spent on the things it was meant to be.
The regulator’s announcement that it had scaled down the average customer bill increase to 21 per cent from 33 per cent also overlooks the fact that two million households already can’t afford to pay.
And you only have to look at the rising share price at listed Severn Trent, Pennon and United Utilities water firms to know their investors think they have a good deal from Ofwat.
It looks a lot like the water firms tried to hustle for the highest amount, knowing they would be knocked down.
Nevertheless, it took just moments for the companies’ lobby group, Water UK, to start moaning that Ofwat’s decision to limit bill increases would risk everything from water shortages to blocking new housing developments.
But really? Should customers be paying more for their water when millions of gallons is wasted from burst pipes?
Sun readers have been filling our inbox with tales of local roads being turned into rivers from leaky pipes.
More often than not, the water companies’ solution is a few traffic cones for several weeks.
But, of course, the biggest scandal is troubled Thames Water, which is in a race to raise enough cash before its accounts run dry in May next year.
But really? Should customers be paying more for their water when millions of gallons is wasted from burst pipes?
Thames this week talked about bringing down “bad debts” — those customers who haven’t paid. The real bad news is the £15.2billion debt mountain it is drowning under.
And who, until recently, was running the shop at Thames Water? Step forward Cathryn Ross, who headed Ofwat during the time when Australian investor Macquarie banked an estimated £2.7billion in dividends during its 11-year ownership of Thames Water, while adding £8billion of debt to the company’s balance sheet.
‘Customers carrying the can’
The reins have been recently handed over to Chris Weston, who justified his £195,000 bonus and total £437,000 pay packet as being rewarded “purely on performance”, with the struggling utility needing “to attract the best talent”.
And what does that talent get you? Well, to quote Ofwat, “a late and incomplete” business plan that “lacked ambition”. Real value for money stuff, clearly.
The situation at Thames is so dire that it has been put in special measures by Ofwat, the first time the regulator has done such a thing in its 40-year history.
Under this “monitoring regime”, Thames will be blocked from paying dividends and bonuses to staff, while infrastructure spending will be ring-fenced.
Sensible stuff. But why was this not its day job? Why did it take a nationalisation threat for the regulator to step in?
It is still reviewing Thames’ dividend to its parent company this year — a failed sop to its investors to try to get them to pour in more money.
But Ofwat doesn’t even have the powers to claw it back.
No, instead it will dish out another financial penalty, even though that supposed stick clearly hasn’t been working.
Thames Water’s accounts show it was hit with £39million of penalties last year for customer service and pollution incidents, and yet its sewage dumps doubled to 16,990.
What Ofwat should be able to do is go after businesses which dumped billions of debts on our waterways and did a runner with their dividends.
Customers should not be left carrying the can for regulatory failures.