OFWAT: more action on climate change needed

Ofwat’s draft decision on Wessex Water’s price limits for 2010 to 2015 has been out for a while and as I sit on their customer liaison panel I have been trying to ascertain what this will mean. You can see my letter of concern sent both to OFWAT and Wessex Water below.

In August 2008, Wessex Water published its draft plan for the period 2010 to 2015, in which it proposed to raise prices by 2 per cent above inflation over the five year period. Research by the Consumer Council for Water showed that 67 per cent of Wessex Water customers said that they were willing to accept the company’s draft plans. In April 2009, Wessex Water submitted information to the economic regulator, Ofwat, that included extra work the company was being asked to carry out which pushed possible price increases to 6.3 per cent above inflation.

We are now at the next stage in a price setting process which takes place every five years. Ofwat will evaluate feedback from the company, the Consumer Council for Water and other stakeholders and in November make a final decision on how much each company will be able to charge customers until 2015. Here is my draft letter - comments welcomed!

Re the OFWAT draft determination re Wessex Water for Prices for 2010-2015 at the end of July (i).

I am disappointed that this draft determination has failed to fully recognise the serious threat that climate change presents to our communities and appears to completely ignore the threat of Peak Oil. Even though UKCP09 was not available until June 2009 there has been considerable evidence about the threats posed. It is crucial that much greater emphasis is put on developing more sustainable approaches to water.

I welcome that OFWAT recognises the importance of tackling climate change. However the scientific consensus is that we must reduce greenhouse gas emissions by 90% by 2050 to have a reasonable chance of avoiding runaway climate change. This draft determination would appear to hinder attempts to meet this target and build resilience against the affects of climate change. Indeed the failure to take these measures now is likely to lead to greater costs in future. I applaud many of the measures already taken by Wessex Water, but even though they are leaders in the field of sustainability, I do not consider they are moving fast enough. In particular, regarding Wessex Water, this draft determination would appear to have a number of negative effects:

1. It is widely recognised that metering helps reduce energy and water use. If we are serious about tackling these issues then we need to be moving towards universal water meters. However it appears that with the draft determination Wessex Water will no longer be able to meter customers on change of ownership? Surely this is an unhelpful move?

2. It appears that the ability to reduce the risk of flooding and ensure properties that have flooded internally do not flood again will be cut back from what has been proposed. This again does not appear helpful when considering the increases we face in extreme weather conditions?

3. Less funding appears to be proposed than was planned for the ageing asset stock. Again this seems to be just the time we need to invest in such measures to build greater resilience?

4. The crucial increase in self generation of energy to about 30% and reduce greenhouse gas emissions by 9% has been cut. As we know the water industry is on a rising emissions trajectory owing to the demands of growth and more stringent quality obligations that require increasingly energy-intensive treatment technologies. If companies are to meet targets in reducing emissions they will need to adopt and be able to deliver such targets. Indeed again if significant investment is not made now we will be reliant increasingly on imported fossil fuels.

A further point regarding customers is that I recognise that with the Wessex Water proposals there may be customers not on metered charges who could find an increase in bills difficult to manage. I hope very much that the Government tackles this issue when they respond to the Walker report this Autumn. However I am also concerned that there is no encouragement to Wessex Water to try the innovative tariffs that smart meters would allow. The current economic situation has led to an increase in those who are finding it difficult to pay. It is widely recognised that affordability of water is a growing problem. There is an urgent need for innovative solutions to support vulnerable customers and I am surprised that this move by Wessex appears to be rejected.

Lastly on two issues that I do not consider have been given sufficient attention in terms of their impact on prices and customers:

1. Sustainable Urban Drainage Systems (SUDS) represent a win-win solution, reducing flood risk as well as the energy required for pumping and treatment. I hope that OFWAT will do more to support and encourage SUDS?

2. Peak Oil. Increasingly this has been recognised by many as a crucial issue yet it gets no mention in the OFWAT report. Why? Dr Fatih Birol, the chief economist at the respected International Energy Agency (IEA) said in August that global production is likely to peak in about 10 years (ii). Some consider it will be much sooner than this. However even 10 years is a very short time to make the necessary changes. Huge investment is needed now to develop renewables. Wessex Water's attempts need to be fully supported and other companies encouraged to make similarly bold moves.

Cllr Philip Booth, Stroud District Council representative on the Wessex Water Joint Customer Liaison Panel

Notes: (i) See report here. (ii) See IEA report here. See industry concerns re Peak Oil here.