Environment Agency Chief Sir James Bevan is warning that if the water industry wants to survive in its present form and to retain the current economic model “ it needs to up its game” and show that private companies can act in the public interest.

In a speech to members of the Water Industry Forum in Birmingham last week, the EA Chief flagged up three key challenges for stakeholders in the UK water sector, including regulators, contractors, NGOs, researchers and the companies themselves.

Sir James told his audience:         

“I think we have three big challenges: an operational challenge, a climate challenge, and a political challenge. They are interrelated; and we have to crack all three if the sector, and the country, is to thrive.”

He described the operational challenge as “about doing stuff; doing it well; doing it better every day and with ever-improving value for money; and responding well to the unexpected.” The added challenge for the water companies, because they are businesses, was to do all this, keep customers happy and make a decent commercial return.

However, he went on to suggest that this was harder than it looks – and the water companies also had “three regulators breathing down their necks” in the shape of Ofwat, the Environment Agency and the Drinking Water Inspectorate.

He told his audience that unless the water companies operated well, day in day out, they risked losing their political and social licence to operate.

According to the EA Chief, the Agency sees its role as helping the water companies via risk based and proportionate regulation to deliver great operational performance whilst ensuring they don’t damage the environment in the process.

It also sees itself as a joint operator with the utilities in helping deliver the water that people need to where they need it via measures including:

• EA operated water transfer infrastructure
• Working with the industry, government, farmers and NGOs to manage down the risks of water shortages when drought threatens - as it may again this summer
• Working with water companies and other local stakeholders to develop catchment-wide strategies for water
• some Conservative ministers have been as critical of the water companies as Labour have
• the Financial Times (not normally a friend of nationalisation) has been critical of the industry in terms similar to those spelt out by Labour.

Pollution - the "glaring exception" in the water companies operational record

He went on to describe pollution as the “glaring exception” in the water companies’ operational record, saying the industry was not yet showing the reduction in numbers of serious pollution incidents the Agency wanted to see.

Sir James explained that the Agency had set a target a few years ago that the numbers of serious pollution incidents caused by the water companies should “trend down to zero by 2020.”

However, over the last five years performance had plateaued in the 50 to 60 range. In 2017 the water companies had caused 52 serious pollution incidents and last year it was even worse: 56.

He warned that serious pollution incidents were bad for the industry “because they tarnish the reputation of the industry as a whole.”

“ And when that happens people ask legitimate questions about whether the current economic model for water drives the right behaviour by the companies, or whether there should be another model.”

He went on to outline the climate challenge, referring to his recent speech describing the “Jaws of Death” in all the water companies’ business plans – the point at which predicted water demand over the next several decades would rise while the available water supply would decline as climate change took effect.

The risks being driven by climate change will see hotter and drier summers in the UK, meaning more water shortages and a higher risk of more frequent and more extreme droughts.

Sir James emphasised the need to tackle both sides of the equation i.e. reduce demand and increase supply. However, using less water and using it more efficiently was only partly about investment in infrastructure or technological innovation.

“Most of it is about changing human behaviour” he said and a big part of success would be waking people up about “what will happen if we don’t change our behaviour.”

Political challenge - “water cos appear at risk of losing support more broadly in the country as a whole”

Moving onto the third challenge, Sir James said that in the last few years a new challenge had “crept up on the industry, a political one.”

He emphasised that the political challenge was not just that “one of the two major parties wants to renationalise the water industry” and had set out clear plans to do so.

“The challenge is deeper than that” he said – “ it is that the water companies appear at risk of losing support more broadly in the country as a whole.”

He singled as the following as evidence of the risks:

He told his audience:

“So let’s be clear: the water industry is under a level of scrutiny it has not experienced before, much of that scrutiny is hostile, and it’s coming from a wide range of sources.”

Adding that in many ways this was ”deeply unfair”, the story of water in the UK over the last several decades was not one of failure, it was “mostly a story of stunning success”, he said.

He went on to praise the water companies for their work on transforming water quality of the rivers, streams and lakes which had seen the return of salmon, otters and other wildlife to rivers that only a couple of decades ago were biologically dead.

The water companies had put more money into improving the environment than anyone else, including the Environment Agency itself, with spending of some £3.5 billion directly on environmental protection and improvement In the last five years.

However, he warned:

“But if the industry wants to meet the political challenge I have outlined, or indeed survive in its present form, then it needs to up its game.”

It needs to tackle the issues that concern the public the most, which are “feeding the criticisms of the politicians and the media” – specifically, pollution, leaks, drought and long term climate resilience.

Last but not least, he concluded, “if the water industry wants to retain the current economic model, then it needs to show that private companies can act in the public interest.”