· Web viewRobin de la Motte. Research Fellow, PSIRU, Business School, University of Greenwich. [email protected]. 30th January 2005. One of 29 WaterTime case …

D16 and D24: WaterTime case studies – Cardiff, UK and Leeds, UK

Robin de la MotteResearch Fellow, PSIRU, Business School, University of Greenwich

[email protected]

30th January 2005

One of 29 WaterTime case studies on decision-making on water systems

www.watertime.net

WaterTime partners: PSIRU, Business School, University of Greenwich, UK

ERL, Universidad Complutense de Madrid, Spain Institute of Environmental Engineering and Biotechnology (IEEB), Tampere University of Technology, Finland

International Water Affairs, Hamburg, Germany Eötvös József College, Hungary

Coordinator: PSIRU, Business School, University of Greenwich, Park Row, London SE10 9LS, U.K.

FP5: Energy, Environment and Sustainable Development Key Action 4: City of Tomorrow and Cultural Heritage

Thematic Priority 4.1.2: Improving the quality of urban lifeContract No: EVK4-2002-0095

[email protected]

A research project supported by the European Commission

Watertime case studiesEstonia: TallinnFinland: Tampere, HämeenlinnaFrance: GrenobleGermany: Berlin, MunichHungary: Budapest, Debrecen, SzegedItaly: Arezzo, Bologna, Milan, RomeLithuania: Kaunas, VilniusNetherlands: RotterdamPoland: Gdansk, Lodz, WarsawRomania: Bucharest, TimisoaraSpain: Cordoba, Madrid, Palma de

Mallorca, Gran CanariaSweden: StockholmUK: Cardiff, Edinburgh, Leeds

www.watertime.org

Table of Contents

1 INTRODUCTION.....................................................................................................................................................3

2 CITIES BACKGROUND.........................................................................................................................................4

2.1 CITY IN TIME.......................................................................................................................................................42.1.1 Cardiff.............................................................................................................................................................42.1.2 Leeds...............................................................................................................................................................5

3 WATER AND WASTEWATER UNDERTAKINGS............................................................................................8

3.1 CARDIFF..............................................................................................................................................................83.1.1 Prices..............................................................................................................................................................93.1.2 Hydrographical network................................................................................................................................9

3.2 LEEDS................................................................................................................................................................103.2.1 Prices............................................................................................................................................................10

4 ENGLAND AND WALES EPISODE: PRIVATISATION, 1985 - 1989............................................................11

4.1 BACKGROUND...................................................................................................................................................114.2 PROPOSAL, 1985 – 1986....................................................................................................................................12

4.2.1 Financial pressure........................................................................................................................................124.2.2 Privatisation proposal..................................................................................................................................134.2.3 Privatisation proposal shelved.....................................................................................................................14

4.3 PRIVATISATION, 1987 – 1989............................................................................................................................144.3.1 Debate over National Rivers Authority........................................................................................................144.3.2 Privatisation.................................................................................................................................................15

5 ENGLAND AND WALES EPISODE: RE-REGULATION, 1989 - 1999..........................................................17

5.1 BACKGROUND...................................................................................................................................................175.2 ECONOMIC REGULATION...................................................................................................................................175.3 CONSUMER REGULATION...................................................................................................................................20

5.3.1 Consumer representation.............................................................................................................................215.3.2 Affordability..................................................................................................................................................225.3.3 Non-payment sanctions................................................................................................................................23

5.4 ENVIRONMENTAL REGULATION.........................................................................................................................235.4.1 Leakage.........................................................................................................................................................24

6 CARDIFF EPISODE: RISE AND FALL OF A MULTI-UTILITY, 1989 - 2000.............................................25

6.1 BACKGROUND: WELSH WATER IN THE 1990S..................................................................................................256.2 FROM WELSH WATER TO HYDER.....................................................................................................................256.3 HYDER...............................................................................................................................................................266.4 FALL OF HYDER................................................................................................................................................266.5 TAKEOVER BATTLE, EARLY-TO-MID 2000.........................................................................................................286.6 BREAK-UP OF HYDER........................................................................................................................................29

7 LEEDS EPISODE: RESTRUCTURING, 1999 – 2002........................................................................................31

7.1 BACKGROUND...................................................................................................................................................317.2 MUTUALISATION PROPOSAL..............................................................................................................................327.3 REACTION..........................................................................................................................................................327.4 OUTCOME..........................................................................................................................................................33

8 PARTICIPATION AND SUSTAINABILITY......................................................................................................34

8.1 PARTICIPATION..................................................................................................................................................348.2 SUSTAINABILITY................................................................................................................................................34

ANNEX: DATA TABLES...............................................................................................................................................36

BIBLIOGRAPHY.............................................................................................................................................................39

Notes...................................................................................................................................................................................41

31/01/2005 Page 2

www.watertime.org

1 IntroductionSince nationalisation of municipal water services in England and Wales in 1974,* and subsequent privatisation in 1989, England and Wales’ water sector does not have the typical structure based on municipal provision. England and Wales now has a unique system of water service provision: it is based on a relatively few private monopolies (23 in 2004) which themselves own the water service infrastructure, and is structured largely on river basin principles. The system, created by stock-market flotation of ten former government agencies (Regional Water Authorities) in 1989, involves regulation by one primary regulatory agency (Office of Water Services, Ofwat), and three others (for environmental, drinking water quality, and competition issues).

As a result of the structure of the UK water sector, the majority of actors, factors and events described in this report figure either at the national level or at the regional level, with rather little involvement from local actors – notably at city level, the primary level of study of most of the Watertime case studies. As is often the case in the UK, the effective ‘national level’ is largely not the UK as a whole, but legislation and institutions specific to two of its constituent parts, England and Wales.

1.1 AcknowledgementsThe author wishes to acknowledge the financial support of the European Commission and would like to thank the following for making the time to be interviewed and/or providing documents and other material:

Sir Ian Byatt, Director-General (1989 – 1999), Office of Water Services (Ofwat) Mark Hann, Ofwat Sue Cox, Ofwat Roy Wardle, WaterVoice John Kidd, Yorkshire Water and UNISON Robin Simpson, Consumers International Linda Lennard, National Consumer Council Pete Bowler, WaterWatch Glynne Williams, University of Cardiff Nigel Horan, University of Leeds

Unless otherwise stated, the views expressed in this report are those of the author and do not necessarily reflect the views of the European Commission, nor any of the listed stakeholders.

* The 1974 changes left aside as an anomaly some private companies supplying drinking water (but not wastewater services) to 25% of the population in England and Wales. Services in Scotland and Northern Ireland retain a separate structure.

31/01/2005 Page 3

www.watertime.org

2 Cities backgroundCardiff is a city of about 300,000 people in south-east Wales. Wales is one of the wetter parts of the UK; in a normal year Welsh Water abstracts for water supply about 5% of annual rainfall in the region. In the drier summer months it boosts the low flows in many of the major rivers such as the Wye, the Tywi and the Dee by releasing extra water from its reservoirs.1

Leeds is a city of about 430,000 people in West Yorkshire, a county in north-east England. (The City of Leeds metropolitan area had around 700,000 inhabitants in 2001.) Over the last ten years Leeds has transformed itself from a northern industrial city into one where services, including tourism and financial services, feature more strongly. Located at the geographical centre of the UK, it is the financial capital of northern England, and the largest employment centre in the region. Over the last 20 years only London has created more jobs.2

2.1 City in Time2.1.1 CardiffCardiff grew at a phenomenal pace in the nineteenth century, becoming a major port especially for coal and iron, particularly after the railway reached Cardiff in the mid-nineteenth century. In 1801 the population of Cardiff was less than 1900; by 1851 it was over 18,000, reaching nearly 60,000 in 1871, and 160,000 by 1900.

By the mid-nineteenth century, this population growth was causing sanitary conditions in Cardiff to worsen, and there were outbreaks of cholera in 1842 and 1849, as there were elsewhere in Britain. As a result of the 1849 outbreak in which 396 people died,3 a petition was presented to the General Board of Health, which carried out an inquiry that year into water and sanitation. The report noted that many people were taking drinking water from the River Taff and the Glamorganshire Canal, sources which were contaminated with sewage, and that a result “cholera was raging in Cardiff”. As a result, on 19 December 1849 local businessmen set up the Cardiff Waterworks Company to supply drinking water from clean sources through a network,4 and in 1850 won passage of the Cardiff Waterworks Act to give them the powers to do so. This was supplemented by further Acts in 1853 and 1860 to enable investment in further supply, including a reservoir.5

In 1875, “after much political and financial negotiation”6 the city of Cardiff won statutory authority to municipalise the Cardiff waterworks, in part because of the need to finance construction of a new reservoir.7 Construction of a modern sewerage system also followed. In 2001, as part of the outsourcing arrangements of Welsh Water following its takeover by the non-profit company Glas Cymru, the agency agreement regarding sewerage management with Cardiff was terminated, leading to concerns that the city would lose economies of scale with its remaining statutory duties (eg drainage).

Year Event Factor Outcome Organisational change Actors1842 Outbreak of cholera Lack of sewerage/clean water1849 Board of Health report into

1849 cholera outbreak in which 396 died

Concludes lack of sewerage/clean water the problem

Cardiff Waterworks Company established as a private company, 19 Dec 1849

Board of Health, Businessmen

1854, 1866

Further cholera outbreaks (225, 76 dead)8

1875 Public Health Act 1875 clarifies responsibilities of councils

1875 Municipalisation Need for more water; need for sewerage

City takes over Cardiff Waterworks

City

1960 Beginning of primary WWT (except central Cardiff)

City

1974 Nationalisation (and large merger)

Economies of scale; more effective integration of

Responsibility for water and sewerage

National government,

31/01/2005 Page 4

www.watertime.org

Year Event Factor Outcome Organisational change Actorsorganisation to river-basin principles

transferred to new Welsh Water Authority; agency agreement made with Cardiff City Council to run sewerage operations

Welsh Water Authority, City

1983 1983 Water Act Removal of Cardiff Council representation on Welsh Water Authority

National government

1989 Privatisation of Welsh Water Conservative ideology; investment needs from EU directives

Stock market flotation of Welsh Water

National government

1996 Welsh Water takes over Swalec, becoming Hyder

2001 Welsh Water becomes non-profit company

Financial difficulties from Swalec takeover etc

Welsh Water becomes a Company Limited by Guarantee

Glas Cymru, Ofwat, Welsh Assembly

2001 Termination by Welsh Water of agency arrangement with Cardiff Council for sewerage operations

Welsh Water

2.1.2 Leeds2.1.2.1 Development of water systemLeeds was one of the first towns in Britain to have a water supply piped to individual houses. Designed by the engineers George Sorocold and Henry Gilbert, it began operating in 1694, serving the wealthy parts of Leeds, then a town of 7000. A water wheel built near Leeds Bridge, Lower Briggate, pumped water from the River Aire through 2.5 kilometres of 75mm diameter lead pipes to a storage reservoir, from where the water entered the local distribution system.9

By the early nineteenth century, Leeds Waterworks Company supplied around 2000 houses with water. Most of Leeds continued to rely on wells, boreholes, water-carriers and the River Aire. By 1830, however, pollution from wastewater had caused the Aire to become completely unsafe for drinking,10 and the death rate in Leeds rose from 20.7 per thousand in 1831 to 27.2 per thousand in 1841. At this point Leeds Waterworks Company finally stopped using the Aire as a source of drinking water. As Leeds’ population continued to expand, the number of connected houses rose from 3000 in 1842 to 22,732 in 1852, when the Company was municipalised, being bought by the Leeds Corporation for £250,000.11

2.1.2.2 Development of sewerage systemDuring the 1832 national cholera epidemic, 700 people died in Leeds over a six month period. A report was written by Robert Baker. “There was shown to be a clear link between the disease and poor drainage. The report was sent to the Home Secretary in London, but appears to have been promptly shelved.”12

“Impelled by a growing movement for Improvement, the newly formed Borough Council promoteda series of local Acts of Parliament… [including] the Leeds Improvement Act, 1842,”13 which among other things empowered the Council to build a sewerage system. One of three rival sewerage schemes was approved by the Council in June 1846. Some delays arose from the need to gain permission from

31/01/2005 Page 5

Houses with piped water supply1800 2000 (Leeds pop 53,162 in 1801)1842 30001852 22,732 (municipalization; Leeds

pop 160,000)1856 30,9961860 35,4471865 46,3051883 78,6001893 (Leeds becomes a city)1901 (Leeds pop 428,572)1974 (Leeds becomes a metropolitan

district, pop 730,000)Source: Sellers (1997)

www.watertime.org

landowners. Further delays arose because the 1842 Act also imposed a borrowing limit of £100,000, and the Council had already borrowed £50,000 for other projects. The financial difficulties (including increasing opposition to a sewerage tax, due to an economic downturn) were only overcome after a further outbreak of cholera in October 1849, in which 2000 died in Leeds. The first contracts for construction work were authorised in 1850, and the sewerage system was completed by 1855, at a total cost of £137,000.14

Between 1856 and 1865 average daily water consumption rose from 1.6 million gallons to 4.4 million gallons, all of which returned to the River Aire without any form of treatment. In 1875 the Council’s Streets Committee began work on the city’s first wastewater treatment plant, using an experimental system designed to produce high-quality sludge for agricultural use. The market for this failed to materialise, and the system was changed to a more traditional one in 1877.

A new, more modern plant was constructed at Knostrop between 1910 and 1936. The late seventies saw investment in sewage treatment decline rapidly and thus by 1983 Knostrop was in a state of disrepair with many areas of the plant deteriorating and effluent quality suffering. To bring it up to date a £24 million upgrade was completed in November 2001. Knostrop now meets a consent of 20 mg/l BOD and 5 mg/l ammonia.15

2.1.2.3 Nationalisation and loss of municipal influence“In 1974 the one and a quarter century period of municipal ownership of the city’s sewerage came to an end. Simultaneously with the implementation of Local Government Reorganisation, which created the Leeds Metropolitan District, the Sewerage, Sewage Treatment and Water Supply functions were handed over, with all related assets, to the newly formed Yorkshire Water Authority. The Water Act, 1973, provided for the Leeds City Council to maintain the sewerage system and design new works on the Water Authority’s behalf - i.e. as an Agent of the YWA. This gave City Councillors some sort of influence on sewerage policy, but the strategic priorities were set by the YWA Board, on which Leeds Councillors had only indirect representation. In the early 1980’s the Conservative Government completely reorganised the ruling bodies of the Regional Water Authorities and, removing all local authority representation, thus completed the severance of sewerage from municipal control.” 16

“In January 1997 Yorkshire Water formally gave notice to the City Council that the Sewerage Arrangements were to be terminated on 31st December 1997. The same notice was also given to all other sewerage agents throughout the Yorkshire Water area. Operational responsibilities for the sewerage system were to be taken ‘in-house’ by Yorkshire Water. City Council staff engaged on this work would be transferred. The Council was given the option of entering a new agreement for designing new schemes, as a Consultant, and decided to take up this option. Thus, with little ceremony, the Council’s pivotal role in the management of the Leeds sewerage system came to an end.” 17

2.1.2.4 City in Time actors and factorsYear Event Factor Outcome Actors1694 First piped water supply1800 Around 2000 houses supplied; most still

rely on wells, boreholes and river water (River Aire)

1832 Cholera outbreak in which 700 die Lack of sewerage/clean water1832 Report on outbreak written by Robert

Baker and sent to Home SecretaryShows clear link between the disease and poor drainage

Report shelved Robert Baker, Home Secretary

1832 Reform Bill grants Leeds two MPs Two Leeds MPs City1835 The Municipal Reform Act allows the first

elected council to take office18First elected council City/MPs

1841 Leeds Waterworks Company discontinues use of Aire for drinking water

Pollution of the Aire

1842 Leeds Improvement Act City/MPs1846 Council decision to adopt sewerage scheme Public health City1846-49

Sewerage scheme delayed financial and other difficulties; Leeds Improvement Act limited borrowing to £100,000

City

1849 National cholera outbreak in which 2000 die in Leeds

Lack of sewerage/clean water Sewerage system initiated; completed 1855

31/01/2005 Page 6

www.watertime.org

Year Event Factor Outcome Actors1852 Leeds Waterworks Company bought by

Leeds Corporation (for £¼m)Failure to expand water system sufficiently; need to develop sewerage

Municipalisation City

1875 First WWTP constructed Pollution of the Aire City1899 Compulsory for dwellings to be connected

to sewers19Public health City

1974 Responsibility for water and sewerage transferred to new Yorkshire Water Authority; agency agreement made with Leeds Council to run sewerage operations

Economies of scale; more effective integration of organisation to river-basin principles

Nationalisation (and large merger)

National government, Yorkshire Water Authority, City

1983 Removal of Leeds Council representation on Yorkshire Water Authority

Removal of Leeds Council representation on Yorkshire Water Authority

National government

1989 Privatisation of Yorkshire Water Conservative ideology; investment needs from EU directives

Privatisation National government

1997 Termination by Yorkshire Water of agency arrangement with Leeds Council for sewerage operations

Yorkshire Water

2000 Mutualisation proposal (rejected) Various Yorkshire Water, consumers/ NGOs, Ofwat, government

31/01/2005 Page 7

www.watertime.org

3 Water and wastewater undertakings

3.1 CardiffCardiff has had water and sewerage services provided by Welsh Water since 1989, and before this by the Welsh Water Authority between 1974 and 1989. Most recently, in 2001, Welsh Water was mutualized, being taken over by a company limited by guarantee* which outsources most of its operations to other water companies.

Welsh Water is the regulated company that provides water supply and sewerage services to over three million people living and working in Wales and some adjoining areas of England. In 2004 it has 1.2 million household customers and over 110,000 business customers, making it the sixth largest of the 23 regulated water companies in England and Wales. Welsh Water employs assets worth over £13 billion.20

Since 11 May 2001, Welsh Water is owned by Glas Cymru. Glas Cymru is a company limited by guarantee, and is the only utility company in England and Wales that is not owned by shareholders. All Glas Cymru’s financial surpluses are retained for the benefit of Welsh Water's customers. As a result of the financing efficiency savings secured by Glas Cymru between 2001 and 2003, Welsh Water's customers received bill rebates worth a total of £23 million - £9 per customer in 2002 and 2003.

Around 85% of annual operating and capital expenditure is covered by Welsh Water’s outsourcing arrangements.21 Provision of water services (asset operation and meter installation) is the responsibility of United Utilities under a 4-year contract (2001-2005). Provision of sewerage services is divided into four areas, with Cardiff’s area currently operated by Wessex Water.22 Other areas contracted out include customer billing (Thames Water), and laboratory services (Severn Trent).

The Welsh Water Alliance is a strategic partnering team – formed between Dwr Cymru Welsh Water, United Utilities (contracted to operate Welsh Water's assets), 6 strategic design/construction partners, 2 cost managers, a partnering facilitator and a supply chain advisor – to deliver around 60% of Welsh Water's capital investment programme during the period 2000-05.

* A “Company Limited by Guarantee and not having a Share Capital, registered under the Companies Act 1985”.

31/01/2005 Page 8

Glas Cymru Cyfyngedig – Company Limited by Guarantee

infrastructure owner

Dŵr Cymru/Welsh Waterest. 2001

Legal operator of the water and sewerage system

United Utilities

Ownership (100%)

Thames Water Severn Trent (others)

Outsourcing of almost all water and sewerage operations

Board members of Glas Cymru

Control, but not ownership (Glas has no share capital)

www.watertime.org

In 2003-4, nearly all business customers and 16% of households had meters (190,600 out of 1,149,700).23

3.1.1 Prices

In 1999, average household bills for water and sewerage were £302. In 2002/3 this was £276 and 2003/4 £277, with the rise limited by a £9 rebate made possible by savings in financing promised and delivered by Glas Cymru’s takeover in 2001. The 2002 to 2003 rise of less than 0.1% compared to average increases of 3.5% elsewhere in the sector.24

Water supply charges in 2004/5 for metered customers: £21.00 standing charge, and 92.60p per m3 (72.44p for non-potable water).

Wastewater charges in 2004/5 for metered customers: £11 standing charge, and 130.30p per m3. Water supply charges in 2004/5 for unmetered customers: £82.30 fixed charge, and 43.84p per £ of

rateable value of the home; wastewater: £105.60 and 61.96p. 25

In addition, in 2004 there is a voluntary £4.50 rebate on water and another £4.50 on sewerage bills.

3.1.2 Hydrographical networkIn 2004 Welsh Water operates 84 impounding reservoirs, 106 water treatment works and supplies an average 900 million litres of water every day through a network of 26,800km of water mains, including 620 pumping stations and 740 service reservoirs. It also collects waste water (and surface drainage) through a network of 17,600km of sewers, incorporating 1,650 sewage pumping stations and 3,000 combined sewer overflows. It is treated at 850 waste water treatment works located next to rivers and along the coast of Wales.26 Over 97% of the waste water collected from household and businesses is treated by a biological process – up from 57% in 1996.27 A significant part of this is due to a new £190m Cardiff Wastewater Treatment Works, completed in 2001.

3.2 LeedsLeeds’ water and sewerage services are provided by Yorkshire Water. Yorkshire Water is owned by the Kelda Group, which in turn is floated on the UK stock exchange. Throughout its region (which roughly coincides with the traditional county of Yorkshire), Yorkshire Water provides 1.7m households and 140,000

31/01/2005 Page 9

Welsh Water key figures, 2003Employees 142 (direct)

4000 (via outsourcing)

Turnover £463mDebts £2013mDebt servicing £128m

Average annual bills, 2003Average household £277

In 2003-4 average household consumption in Welsh Water’s area of supply was 149 litres per head per day (122 measured, 153 unmeasured). Total water delivered was 669.8m litres per day. (Ofwat 2004: 45-7 and 74)

Welsh Water supply region

Source: Dwr Cymru

www.watertime.org

businesses with water and sewerage services. It supplies around 1.24 billion litres of drinking water each day.28 Since 1995 it has reduced leakage by 44.8%. These levels are considerably better than targets set by Ofwat.29

It has been described as “Britain's most controversial privatised water company”30 following a series of public relations disasters, notably in relation to the 1995 drought (see England and Wales Episode: Reregulation above). Ofwat suggested in 1996 that

Yorkshire Water PLC’s serious failures to ensure a reliable and continuous supply, as well as to control leakage and flooding from sewers had to be related to the company’s dividend policy.31 Financial decisions such as a 1997 £145m share buyback despite a revolt by small shareholders,32 and a bonus scheme which management refused to link to customer service rather than financial performance, again despite a revolt by small shareholders,33 also contributed to its negative public image.

As part of the periodic price review process, Ofwat was at times asked by the water companies to set price caps to allow for investment that companies then tried to avoid. One example of this was Yorkshire Water expecting to avoid £50m expenditure on sewage treatment because the Conservative government promised to redefine coastal waters near the city of Hull as sea – where untreated sewage could be dumped – instead of estuary, where sewage would have to have been treated.34

3.2.1 PricesIn 2003-4, 34% of households were metered (471,600 out of 1,403,800).35

Water supply charges in 2004/5 for unmetered customers: £25.50 standing charge, £39 fixed charge, and 76.6p per £ of rateable value of the home.

Wastewater charges in 2004/5 for unmetered customers: £27.65 standing charge, £28 fixed charge, and 82.1p per £ of rateable value of the home.

For metered customers the volumetric rate is 86.2p per m3 for water (up to 50,000 m3/a) and 85.3p per m3 for wastewater, plus fixed/standing charges similar to unmetered.36

31/01/2005 Page 10

Yorkshire Water key figures, 2002EmployeesDrinking water supplied 1240 million litres/dayTurnover £567.0m

In 2003-4 average household consumption in Yorkshire Water’s area of supply was 147 litres per head per day (138 measured, 149 unmeasured). Total water delivered was 1060.9m litres per day. (Ofwat 2004: 45-7 and 74)

www.watertime.org

4 England and Wales episode: Privatisation, 1985 - 1989

4.1 BackgroundWater and sanitation remained a largely municipal service in England and Wales until 1974, as in the rest of Europe, having been largely municipalized in the half-century preceding the First World War. In 1973, twenty-eight private companies remained, supplying drinking water to 25% of the population (but no sewerage or wastewater treatment services), which were excluded from the 1974 restructuring.37 The proposals for restructuring were largely generated by water professionals within the water industry, who were able to mobilise government backing to push through the reforms in a context where the major loser – local government – was distracted by a contemporaneous reorganisation via the 1972 Local Government Act.38

The private

companies aside, the 1973 Water Act restructured virtually the entire water industry in England and Wales. It created 10 Regional Water Authorities (RWAs), based on river basins, which took over the work previously carried out by 157 water undertakings, 29 River Authorities and 1393 Sanitary Authorities.39 The RWAs took over not only the work, but also the assets, including the water and sewage works and associated land and buildings, and the liabilities. No compensation was paid to the local authorities, but their objections were partially overcome by the government assurance that local government would control the RWAs by always having a majority of members on their boards.40 Furthermore, sewerage work would largely continue to be carried out by local government under agency agreements. As of 1982, 95% of sewerage work was still handled by district councils under agency arrangements with the RWAs.41

Between 1974 and 1983 most of the members of the RWAs were indeed appointed by local authorities, with the chair and some other representatives appointed by ministers. There was no separate consumer representation, but the RWAs in principle remained accountable to local councils through their appointees;

31/01/2005 Page 11

Source: Bakker (2003: 59)

www.watertime.org

the public could attend meetings of RWAs; and consumers could also make complaints to the Local Ombudsman – a body created at the same time, with the power to investigate complaints against the RWAs as well as local councils. In practice local government’s representatives on RWAs were largely ineffectual – swamped by technical details during meetings, their membership was essentially a placebo42 – and decision-making in the RWAs was largely cast in technocratic terms, and dominated by water sector professionals. (Indeed the reform, towards integrated management based on river basin principles, was largely driven by the profession’s technical concerns, albeit limited by political and financial practicalities relating to integration of the private water companies.) This technocratic approach was not a dramatic change from the previous situation, but the loss in effective oversight from local government reinforced it. Insofar as local government did keep an influence, it was accused of contributing to bureaucratic indulgence at the RWAs: staffing levels rose by 10% between 1975 and 1979, despite the scope for rationalisation after the 1974 restructuring.43

The 1974 reorganisation also had significant effects on the industry’s finances, and on customers’ bills. Prior to 1974, local authorities had generally subsidised water services, while sewage disposal had been supported via a national government grant (rate support grant), amounting to perhaps 20% of industry income.44 The 1973 Act abolished these, introducing full cost recovery.45

The government introduced various financial targets restricting borrowing and investment, and by 1982 investment had halved compared to 1974,46 under pressure from the IMF.47 Furthermore, successive governments delayed implementation of the relevant part of the 1974 Control of Pollution Act for eleven years, until July 1985, making it easier for the government to adjust pollution targets to the actual performance of the RWAs and thereby limit the need for investment.48 As a result, water and infrastructure quality deteriorated significantly in the 1970s and early 80s across England and Wales.49

After 1983, under increasing government financial pressure and in a context where such changes were occurring throughout the public sector, the RWAs became increasingly commercialised, to which end the Conservative government had already reduced local government representation to 40%.50 The 1983 Water Act removed it altogether (again without any compensation to local government), reduced the size of the boards (to 9 – 15 members) and gave the RWAs the right to terminate sewerage arrangements and assume full control. The Act also abolished the National Water Council, so that RWAs now negotiated directly with the Department of Environment, notably on the financial regulation issues.51 As before, whilst the government set limits on borrowing and spending and set certain performance targets, RWAs were largely free to make policy within these bounds. The Act also created Consumer Consultative Committees, although the private sector continued to lobby RWAs directly, without going through these structures.52 The public also lost the right to attend RWA meetings.53

4.2 Proposal, 1985 – 19864.2.1 Financial pressureIn the early-to-mid 1980s the Consrvative government began developing plans to privatise a range of nationalised industries such as British Telecom, British Gas, and British Airways. Nonetheless, as late as

31/01/2005 Page 12

Water industry capital expenditure

Source: Ofwat (1994: 22)

www.watertime.org

1984, privatisation of the water industry “would have seemed laughable”,54 the Financial Times remarked in 1986. As late as December 1984 the Conservative government made statements to Parliament as definite as “We have absolutely no intention of privatising the water industry”.55

The government was however continuing and indeed intensifying the pattern of increasing financial pressure and commercialisation in the industry in the 1970s and especially the 1980s; self-financing of investment rose from under 20% in 1974 to 60% in 1980, and nearly 100% by the mid-1980s. Manpower fell from 62,000 to 52,000 between 1981 and 1986.56 As Graham Hawker (chief executive of Hyder in the mid-1990s) said of Welsh Water after the 1983 Water Act reinforced these trends: “We were instructed to run the business on commercial lines and we had to create a new business structure.”57 By 1981 the government also imposed current cost accounting methods on the industry, against heavy opposition,58 since compared to historic cost accounting it inflated asset values and reduced rates of return.* In late 1984 the government – at the Treasury’s instigation – resurrected a bill to increase control over the nationalised industries, previously shelved over widespread opposition, which would enable it to extract surplus from the RWAs even if they paid off all their debts,59 as Thames Water was expecting to do within some years.

In January 1985 several RWA chairmen reminded their customers that price increases were set by government, with Roy Watts, chairman of Thames Water, adding that the Treasury was now treating Thames as a cash cow, and declaring that Thames would refuse to implement the price rise unless it was approved by a vote in the House of the Commons.60 The RWAs were opposed to the government’s insistence on the RWAs contributing to keeping the PSBR down by borrowing less, paid for by pushing up water prices and by reducing investment. In the case of Thames, the largest and most profitable authority (with 11m households and 25% of the population), this meant more repayment of government debt than planned, which as well as reduced investment implied a price rise of 10% for Thames in 1985-6 instead of Thames’ planned 3%.61

4.2.2 Privatisation proposalIn this context the privatisation debate was initially triggered in early 1985 by Roy Watts, chairman of Thames Water since 1983 (previously deputy chairman and chief executive of British Airways, after a 30-year career in civil aviation),62 although he may have been “pushing at an open door”.63 Watts – who at the time was said to have “long advocated privatisation as a means of solving the row over charges”64 – said that with such negative interference from the Treasury, Thames could provide a better service in the private sector. Environment Minister Ian Gow seems also to have discussed the possibility with the Chancellor of the Exchequer and with some Conservative MPs, although there had been no departmental consideration of possible models or of the complex regulatory issues involved, including possible issues relating to EC law.65 On 7 February 1985 Watts got the Parliamentary vote he had demanded, which the government won comfortably despite 19 Conservative MPs opposing and 28 abstaining.66 During the debate, Ian Gow remarked – apparently catching his department off guard67 – that he would be “examining the possibility of privatisation,”68 to which Watts replied that the government should “Privatise the water industry, fast, or face continuing guerrilla action over prices,”69 volunteering Thames as the first authority to be privatised.70

In April the government circulated a discussion paper to the RWAs and others, partly to buy time in view of the lack of previous preparation.71 By May 1985 Watts estimated Thames Water’s value at £1bn, and wanted it privatised by 1987, saying it needed only £70-80m to establish itself as a private company.72 In July 1985 the government commissioned a preliminary financial analysis on the prospects of a successful flotation, requiring a report within three weeks.73 By February 1986 water privatisation was considered “the next logical step,”74 and Watts was described as “the driving force behind the plan... Ministers have wavered in the face of the size and complexity of the project, but Mr Watts has never ceased to insist that he wants his own authority at least to be transferred to the private sector before the move can be put at risk by a possible Conservative defeat in a general election.”75

* For Thames in 1985/6, the difference was between £930m and £4.67bn in asset value, and 15% and 1.4% in rate of return. (Richard Evans and Walter Ellis, Financial Times, 26 January 1985, “Thames swims against the tide; Row over water charges”)

31/01/2005 Page 13

www.watertime.org

The industry reaction to the idea of privatisation was mixed; besides Thames’ strong advocacy and clear opposition from North West Water and Welsh Water, most authorities were either open-minded or mildly sceptical.76 One industry reaction which had been clear from the start – it was central to privatisation proposals Thames published77 – was that the sector should not be broken up. If the RWAs were to be privatised, they should be privatised wholesale, including environmental regulatory functions, to maintain the advantages of integrated river basin management.

4.2.3 Privatisation proposal shelvedThis wholesale privatisation approach favoured by the industry was endorsed* by the February 1986 Department of the Environment White Paper,78 but ran into opposition from a wide range of interest groups, including the Country Landowners' Association, Council for the Protection of Rural England (CPRE), the Institute for European Environmental Policy (IEEP), the CBI, and the trade unions, and even caused disquiet at the Ministry of Agriculture. The principal issue for many was not the principle of privatisation itself – although there was considerable opposition to this as well – but the handing of statutory regulatory powers to a private company. The CPRE and IEEP framed this point in terms of EC law, questioning whether the privatised water companies would be considered “competent authorities”. In May 1986 an indirect European Commission reference to this issue – the government had no effective dialogue with the Commission on the matter – suggested they would not be, although the government did not accept this until May 1987.79

In July 1986, six weeks after his appointment, the Environment Secretary Nicholas Ridley put the privatisation plan on hold, in view of the remaining unresolved issues and the upcoming general election. Mr Ridley affirmed the intention to proceed “as soon as practicable.” One of the unresolved issues was whether to float the RWAs separately, as originally envisaged, entailing the risk that a Conservative election defeat would leave the job half done.80 Maloney and Richardson (1994:124) describe this failure of the original privatisation plan as reflecting “an inappropriate choice of consultation processes”, as the government believed it could make major decisions with minimal participation beyond the industry, and without reference to constraining factors such as EC law.

4.3 Privatisation, 1987 – 19894.3.1 Debate over National Rivers AuthorityIn May 1987 the Commons Environment Select Committee recommended that regulatory functions be separated from the RWAs, whether or not they were privatised. This coincided with the first prosecution of a water authority for breaching water pollution regulations, brought by the Anglers Cooperative Association on information from the public register which authorities were required to keep under the 1974 Control of Pollution Act,81 which had not been implemented for the water authorities82 until July 1985.83

A general election took place on 11 June 1987, in which the Conservative Party was re-elected. The Conservative manifesto included plans to privatise the water sector, splitting the environmental regulatory and river management functions into a National Rivers Authority (NRA). The proposed split was not consulted on (the RWAs merely being notified the day before publication of the manifesto).84

The plan for an NRA aroused widespread (though not universal – it was welcomed by Severn Trent) opposition within the industry,85 most vehemently from Roy Watts, who proposed a much smaller body which would be purely regulatory without any operational responsibilities. One concern was that an undermining of the principle of integrated river basin management would reduce the companies’ potential

* There were a variety of additional reasons for rejecting the major alternative of the French franchising model, including the fear that it would discourage investment if firms did not own the assets, or, worse, that investment would remain the responsibility of the public sector. The government had in any case settled on the stock market flotation model for other privatisations, having developed a price-cap regulation system it believed would deliver light-touch regulation of a private monopoly, with financial markets helping to ensure efficiency. Flotation provided much more income, which was used to support government spending, and there was a significant ideological element – the intention to create a “share-owning society”.

31/01/2005 Page 14

www.watertime.org

for overseas consultancy in an area where the UK was acknowledged as a world leader. Eventually it became clear that the government was set on this model, not least because without this political opposition to the principle of privatisation would be even harder to overcome.86 This dispute over the NRA arose despite the fact that the RWAs which initially been opposed to or sceptical about the principle of privatisation had mostly come to accept the idea.87

Finally, after further consultation with a range of interested parties showed reasonably broad support, the industry accepted the NRA as inevitable, and thereafter focussed on working with the government on the details of privatisation. The advantage for both sides was that it enabled the breakdown of the issue into a number of technical problems, helping to depoliticise the proposals, and helping to achieve a more consensual approach to decision-making, at least within the government/industry sphere.88 It also made it easier to overcome the considerable political opposition to the privatisation principle itself as well to details of its execution (such as a short-term inoculation of the companies from prosecution over certain pollution issues, through the issuing of blanket permits without maximum discharge limits).89

4.3.2 PrivatisationIn 1988 the government took a number of actions to coordinate the privatisation process, including creating a new post for a senior civil servant experienced in privatisation, Patrick Brown, to oversee the water industry,90 appointing a single merchant bank adviser to all ten RWAs, and organising a secret dinner between the RWA chairmen and Normal Lamont, then in charge of the Government’s overall privatisation strategy. The chairmen made the case to Lamont, which he accepted, that the RWAs should be floated in their entirety, and that all debts should be written off and a £1.6bn cash injection provided to ensure attractiveness to investors.91 One concern for ensuring a successful and speedy water flotation was that the electricity industry was to be floated in the same way soon after, and if the water companies did not provide a good return to investors this would reduce the Treasury’s income from the larger electricity industry sale. Delays could also lead to problems with a general election, which would have to take place in 1991 or 1992.

It should be made clear that the influence of EC requirements as a driver of massive investment needs was a significant contributory factor to the government’s determination to proceed with privatisation. Although much of the investment anticipated in the late 1980s related to meeting a backlog in maintenance and a failure to meet existing standards rather than the imposition of new requirements (though there were these too92), directives from the EC made such expenditure imperative,93 which previously it was not. Investment needs of an estimated £25bn - £30bn would have been politically very difficult to fund with the industry in the public sector, because of the effect on government debt (PSBR).94 Also attractive was the hope that after privatisation the necessary price increases could be blamed on the private companies.

In July 1988 Nicholas Ridley announced plans to float all ten RWAs individually and simultaneously in late 1989,95 abandoning at the suggestion of their consultants Kleinwort Benson the earlier scheme of creating three ‘batches’ of RWAs to ensure attractiveness to investors,96 following strong lobbying from RWA chairmen both for and against simultaneous flotation.97 The new approach was bolstered by requiring larger investors to buy shares in all ten at flotation if they wished to participate, although the shares could later be sold freely.98 At the same time Michael Howard, newly-appointed Minister for Water and Planning, was given responsibility for piloting the water privatisation bill through Parliament, having successfully done so for the controversial poll tax.99

All ten RWAs were floated in November 1989, despite major opposition in Parliament – including doubts among some Conservatives – and outside, with trade unions and a large majority of the public opposed,100 which had led to suggestions as late as March 1989 that not all the RWAs would be privatised at once.101 The industry’s £4.9bn debts were almost entirely wiped out, and a £1.5bn “green dowry” provided.102 Yorkshire Water and Welsh Water respectively had debts of £576m and £473m paid off, and received cash injections of £22m and £150m.103 104 Despite this £6.4bn cash injection (and £7.7bn of tax allowances towards the capital investment programme), the flotation was priced relatively low,* to ensure its success, and raised only

* The share price discount at flotation was around 22% of the companies’ market value, compared to the price after the first week of trading (Jenkinson and Mayer 1994: 294)

31/01/2005 Page 15

www.watertime.org

£5.2bn; the discount was much higher compared to the book value of the assets (£8.87bn at historic cost, £34bn at replacement cost).105 Including the £146m cost of the sale itself, the government sold the industry at a loss of around £1.35bn.106

The privatisation process was not affected by a number of related court cases brought by 15 local authorities in February 1989 over the transfer of what had been until 1974 municipal assets to what would soon become private companies.107 It was argued (unsuccessfully) that – not least since the authorities had not been compensated for the loss of their assets – full ownership (including the right to dispose of the assets) had not in fact been transferred in 1974 to the national government.108 The cases were argued by reference to the claim brought by Sheffield City Council against Yorkshire Water Services Ltd and Yorkshire Water Authority.109

31/01/2005 Page 16

www.watertime.org

5 England and Wales episode: Re-regulation, 1989 - 1999

5.1 BackgroundThe Littlechild “RPI – X” formula which underpinned Britain’s utility privatisation was designed to be a system of “light touch” controls. Price caps would be set for five or ten years in advance, which would restrain the behaviour of a private monopolist (in areas with little or no competition), whilst providing much stronger incentives for efficiency gains than rate-of-return regulation (often subject to cost-plus tendencies). The stable financial environment was a deliberate rejection of the volatility associated with government using nationalised industries as macroeconomic tools. Furthermore, there was a general expectation that in the long run, regulation would be replaced by competition.

In the water sector, this system was to function in a context where there was, in effect, one powerful regulator (Ofwat) which controlled the purse strings, and three others – the NRA (later Environment Agency, EA), the Drinking Water Inspectorate (DWI), and the Monopolies and Mergers Commission (later Competition Commission). It fell to Ofwat to juggle the competing demands of environmental investment (notably from EU requirements*), its statutory duty to ensure the financial viability of the companies, and the political and regulatory objective of keeping bills down. In the first five-year period its hands were largely tied, with ministers having set the capital programme and price caps in 1989 – although Ofwat did gain a voluntary price restraint from most companies in 1992/3. It also carried out a Periodic Review at the earliest possible opportunity, with new determinations taking effect from April 1995. The companies’ behaviour and financial results after the review, as well as the new issues raised by the 1995 drought, led to further regulation (notably on leakage) and the announcement in 1996 of a Periodic Review for 1999.

Following Labour’s election in May 1997 with water issues a significant part of its campaign, it organised a summit with the water companies early on, notably on the matter of leakage and water efficiency, where it wanted to strengthen Ofwat’s response on the issue to the 1995 drought. Labour also commissioned an extensive review of utility regulation to inform its future policy, resulting in the Green Paper, A Fair Deal for Consumers: Modernising the Framework for Utility Regulation, on 25 March 1998. Ian Byatt remarked in a September 1999 lecture, “[some] appear to want to counter the privatisation of utilities with the nationalisation of regulation.”110 Following comments by Ian Byatt in January 2000 on the draft Utilities Bill, the Government withdrew water from the bill in March, with the intention of developing a separate Water Bill, which was passed in 2003.

5.2 Economic regulationIn the first eight years after privatisation, the 10 privatised water companies (WaSCs†) saw an average real-terms increase in pre-tax profits of 142%. This derived largely from a real-terms increase in average household bills of 46%‡ between 1989/90 and 1998/9,111 although efficiency savings also contributed. Although the combination of rising profits, prices and management remuneration were unpopular with customers, it was not unexpected: price rises had after all been programmed by the Government in 1989, to provide the financial base to carry out the large-scale capital investment programme the companies were committed to.

As the capital investment programme was largely carried out as planned, at first sight the system was operating much as intended. A closer look, however, shows that all was not well. Perhaps the single most worrying statistic was that in the first eight years after privatisation the WaSCs delivered for their

* The Urban Waste Water Treatment Directive alone is estimated to require UK investment of €12.53bn (1996/7 prices) over twenty years (1990 – 2010). In per capita terms (€166), this is actually relatively modest compared to some other EU countries. (WRc 2000: 107)† The 10 privatised water companies – the former RWAs – are sometimes referred to as “water and sewerage companies” (WaSCs), to distinguish them from the former “statutory water companies” which were already privately-owned in 1989 (“water only companies”, WoCs).‡ For Welsh Water and Yorkshire Water, the figure is 43% and 33% respectively.

31/01/2005 Page 17

www.watertime.org

shareholders an annual average return on investment (including dividends and capital gains) of 24% in real terms, against a stock exchange average of 13%.112

Pre-tax profits of water and sewerage companies in England and Wales (£ m, 1997/98 prices):

1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1989/90-1997/8

Anglian 106 188 202 212 148 236 252 215 274 158%Dwr Cymru 46 158 163 177 162 132 119 215 209 351%North West 52 265 271 282 302 298 368 396 394 658%Northumbrian 14 58 72 79 70 99 97 129 135 898%Severn Trent 176 307 313 308 316 292 395 373 351 100%Southern 81 120 136 136 143 157 175 na na 115%South West 61 109 106 106 104 69 115 118 106 72%Thames 218 263 278 287 271 332 242 384 419 92%Wessex 31 81 91 98 116 128 142 150 139 351%Yorkshire 137 141 146 158 161 155 172 223 206 50%Total 922 1,690 1,776 1,844 1,794 1,898 2,077 2,203 2,232 142%

Source: Company Annual Reports, presented in House of Commons Research paper 98/117 December 1998

For what should be one of the least risky investments going, this suggests a major structural problem with the regulation of the industry – companies simply had too much money, and particularly in the early years found it too easy to distribute money out of the regulated monopoly business which was generating the cash, into the WaSC group companies. From here, much of it was passed on to shareholders as dividends, some to fund often speculative and unsuccessful diversification overseas or into other sectors, and some recycled back to the regulated business as loans, providing an additional mechanism for money to flow out of the regulated business.*

Moreover, the companies made relatively little use of their impressive stock market performance to raise capital for investment. Having started with virtually no debts – indeed a collective cash pile of over £1bn – finance was raised primarily through increasing levels of debt, rather than through equity issues. Indeed, several companies launched major share buyback schemes, returning capital to shareholders, in addition to the £5.3bn in dividends – 67% of cash surplus – paid out by 1993.113

These problems were to a certain extent inherent in the structure of the industry at privatisation, and it inevitably took time for the economic regulator to fully grasp these issues and develop the tools and safeguards to tackle them.† Ofwat Director General Ian Byatt warned the companies as early as 1991 not to commit to excessive dividend growth, suggesting a 2% annual rise which was routinely far exceeded, even excluding special dividends and share buybacks. Ofwat's first paper on capital costs had argued that water shares were likely to be bought for income rather than capital growth114 – a prediction (or perhaps a wish) clearly not fulfilled for much of the 1990s.

The 1994 Periodic Review, the first attempt at tightening the 1989 price caps which turned out to have been too generous, was in retrospect – and by some even at the time – regarded as a “soft touch”. In particular, the scope for reduction in operating costs – some through increased efficiency, some through lower service standards and input costs – was again underestimated, this time by the regulator rather than the Government.

* In the case of Yorkshire Water, its regulated business between 1990 and 1999 paid out £954m in dividends to its parent company, of which its parent distributed £350m to shareholders, and spent £275m on diversification acquisitions. As a result of remitting so much to the parent company, YW had a negative cash flow, and so some of the dividends were recycled back to the regulated business in the form of interest-bearing debt, helping bring YW’s gearing up to 34%. (Shaoul 2000: 18) † For example, the 1992 Competition and Service (Utilities) Act strengthened Ofwat’s powers to collect performance information from the water companies.

31/01/2005 Page 18

Post-tax rates of return

Source: Ofwat (2004b: 139)

www.watertime.org

Ofwat’s Director General noted in 1999 that as well as exceeding his expectations, the companies had “consistently outperformed their own estimates at both the 1989 and 1994 price reviews.”115

Actual and projected total operating expenditure (£bn)

Source: Ofwat (1999: 21)

As well as reducing operating expenditure per unit of capital (increased capital investment in many cases also meant rising operating costs), companies sought to save on planned capital expenditure, perhaps the most ‘gameable’ part of the regulatory game.*

“Unlike most major capital expenditure programmes, the level of investment even at the height of the investment programme turned out to be less expensive than expected. Expenditure had been expected to peak in 1994-95 and then fall back to the levels of 1992-93 and below. In fact it peaked in 1991-92.”116

Shortly after the 1994 price review was finalised, a number of companies discovered that they did not need to spend so much on capital expenditure after all; for example Thames reduced its five-year programme in February 1995, just six months after the periodic review was completed.117 The companies then made use of this ‘capital efficiency’ to boost dividends. In one case, Yorkshire Water tried to avoid £50m of agreed capital expenditure on sewage treatment by persuading the Conservative government to redefine coastal waters near the city of Hull as sea – where untreated sewage could be dumped – instead of estuary, where sewage would have to have been treated.118 The decision was later overturned and the investment went ahead.

By 1996, this was already clear enough to Ofwat for it to announce the next review for 1999, and it was likely to be harsher. This was only re-enforced by the 1997 election of Labour – partly on the basis of a strong criticism of the privatised utilities, especially water – introducing a new political environment; and

* It is in the interest of companies to overstate expected operating and capital costs, in order to achieve higher price limits, which can then be used to boost profits.

31/01/2005 Page 19

Capital investment, 1981 - 2005

Source: Ofwat (1999: 21)

www.watertime.org

only slightly offset by the new government’s Windfall Levy partially pre-empting the next price review by clawing back excess profits.

The 1999 Periodic Review saw average price cuts in 2000/2001 of 12.3%, and average annual price cuts for 2000-2005 of 2.1%. This dealt a severe financial blow to one vulnerable company in particular (Hyder), but it set the whole industry searching for ways to reduce its cost of capital, which after years of cost-cutting on operating costs seemed the only way to make the savings necessary to maintain anything like the previous profit levels. The search for ways to reduce the cost of capital* led inevitably to various proposals to separate the low-risk, capital intensive side of the business (regulated asset ownership) from the regulated operations and from the rest of the group. In early 2000 “Ofwat officials said that "virtually every investment bank in London" was hawking around plans to convert the ownership of water companies so that the assets are financed by debt, not shareholders' equity.”119

Although at least three other companies were considering variations on the idea,† two schemes were seriously proposed for shareholders to exit infrastructure ownership completely: the non-profit company, Glas Cymru, for Hyder’s Dwr Cymru, and a mutual society, for Kelda’s Yorkshire Water. As the extent of the regulatory issues became clear (though Glas Cymru eventually overcame them, the regulator emphasised the uniqueness of the circumstances), companies looked for alternatives, notably ringfencing the regulated business within the group on a “thin equity” model, “which [has] many features in common with the Glas model.”120 Others took a more old-fashioned approach, loading up on debt to increase their gearing, but using some innovative credit instruments to reduce borrowing costs. There were only two other alternatives, of which one (major consolidation by merger) was blocked by Ofwat’s desire to maintain the number of separate companies as comparators for its regulatory approach. This left acceptance of takeover either from outside the industry or from outside the country (or both), as a means of providing an injection of capital and possible diversification opportunities; see for example RWE’s takeover of Thames Water in 2000.

These industry-wide changes were significant enough to amount to a partial reversal of the original privatisation model. In the case of Glas Cymru, this meant an arrangement resembling a Regional Water Authority with competitive outsourcing.‡ The regulated subsidiaries of the other companies, now increasingly loaded up with debt and subject to stringent requirements on rate of return on capital (as factored into their price caps), became increasingly reminiscent of the pre-1989 statutory water companies, which were largely debt-financed and heavily regulated on the use of profits and dividends.121 This too was a model which had been rejected, but re-emerged ten years later.

5.3 Consumer regulationIn 1989, the only consumer representation structures in the sector were the Customer Service Committees (CSCs), which had been set up in the 1980s. The need for a coordinating role soon led to the creation of the Ofwat National Customer Council (ONCC), but through much of the 1990s these bodies remained relatively weak. Structurally part of Ofwat, they functioned more as complaints departments for the companies than as consumer watchdogs – performing a small but useful role. The wider task of publicly challenging broader issues of regulation and company behaviour was left to a range of NGOs, including the National Consumer Council, Friends of the Earth, and the British Medical Association. The opposition Labour Party played a role, as did, in one unusual instance, local government, instigating the successful court case over budget payment units which in February 1998 banned them from being used to cut off or reduce water supply.

* The importance of cost of capital considerations can be seen from Ofwat’s 2002 decision to extend the notice required to terminate water companies’ licences (where there is no breach by the company) from 10 years to 25. http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/Content/md182† Anglian Water, South West Water, and Mid Kent Water (Nick Bevens, Evening News (Edinburgh), 15 June 2000, “Blair wants utilities back in public hands”).‡ Although the analogy should not be overplayed, the disputed legal status of the RWAs, which had led to a 1989 court case over the question of their ownership, more closely resembled a (regulated) trust than a nationally-owned plc. Moreover the RWAs had relatively large boards appointed by local and national government, which may be considered analogous to Glas Cymru’s board of “the great and the good” of Wales.

31/01/2005 Page 20

www.watertime.org

5.3.1 Consumer representationThe CSCs, one for each water company, were created at privatisation as an integral part of the structure of Ofwat itself.122 The CSCs’ statutory duties are to represent the interests of all customers, and to monitor and investigate complaints about the water companies. The CSCs are appointed by, staffed by, and financed through Ofwat. Ofwat created a national non-statutory body, the Ofwat National Customer Council (ONCC), consisting of the chairs of the 10 CSCs.123 In 2002 the ONCC renamed itself ‘WaterVoice’.

CSCs are formally consulted by Ofwat as part of the Periodic Review process for setting new price limits. The CSCs have no statutory rights to information from the companies, except what the companies give them voluntarily, and so access depends on good working relations and personal contacts. The CSCs have good access to Ofwat-generated information as a result of their integration within Ofwat, including monthly reports highlighting regional issues as well as the monthly meetings of the ONCC. The CSCs have been able to improve companies’ complaints procedures. They are not alone in representing consumers: in practice they may be regarded as interacting with the political processes involving democratic electoral bodies, such as municipalities and parliament, agencies, such as Ofwat itself, and the lobbying and campaigning activity of other bodies, including single issue campaigns, general consumer interest groups, trade unions and others.

The main critic of the existing operation of consumer representation in water and elsewhere was the National Consumer Council (NCC), in a series of reports. In 1995 it published a detailed review of consumer representation in the utilities.124 The structure and operation of the CSCs in particular was criticized for its lack of independence and its reliance on confidential briefings from Ofwat. The CSCs were “so closely integrated into Ofwat it is not possible to provide a separate assessment of their effectiveness… there is a perception from those outside that it is difficult and that CSCs are in effect directed by OFWAT.” A possible example cited in the report was the case of Diana Scott, chair of the Yorkshire CSC, who had been “an outspoken consumer advocate on the issue of metering,” contrary to the Ofwat view; in 1994, she was the only CSC chair not re-appointed, 125 although according to WaterVoice she was offered reappointment and turned it down.126

The NCC concluded by recommending that consumer bodies should be independent, with statutory rights to information, handle consumer complaints, represent the interests of domestic and small business consumers only, and be given resources to conduct their own research.127 A NCC report in the following year on the water industry price review system returned to the same criticisms. Ofwat took the view that the prime responsibility for eliciting customers’ views rests with the companies, with Ofwat then supplementing this information with comments from the CSCs and their data from complaints. But the NCC criticized this reliance on company research as not independent, pointing out that the CSCs had neither the expertise nor the resources to make a critical input, and that complaints were an anecdotal, skewed and limited source of information.128

Labour came to power in 1997 committed to reform consumer representation structures to ensure their independence. This was delayed for the water sector, being removed from the 2000 Utilities Act at the last minute to be moved to a comprehensive 2003 Water Act. The Act set up an independent Consumer Council for Water, replacing the ONCC/CSC system – although the change will not come into effect until October 2005,129 to allow the 2004 price review to be concluded without disruption. The Consumer Council will be closer to the model employed in the other network industries.130

In anticipation of the independent consumer body this would create, the ONCC rebranded itself WaterVoice and made a determined effort to be and be seen to be independent of Ofwat. Ofwat said that it had anticipated the setting up of the Council by treating the existing consumer body, WaterVoice, “as an independent consumer representative whose views may well differ at times from our own.”131

5.3.2 AffordabilityAs prices themselves were fixed for the first five years after privatisation (and substantially constrained by EU requirements thereafter), the public debate over the affordability of rising water bills was displaced into a number of related areas, notably non-payment sanctions and metering. The sharp rise in disconnections in the

31/01/2005 Page 21

www.watertime.org

first few years – and the later switch to budget payment units, BPUs, with their potential for self-disconnection – raised issues of equity, as it was felt that some low-income customers were being cut off from an essential public service. Much of the problem actually lay with changes in the social security system from 1988,* which successive Conservative and Labour governments declined to tackle, despite the fact that the problem had been highlighted by Tony Blair in a newspaper article in 1988.132 However, particularly in the early years after privatisation, the problem was exacerbated by the inevitably more aggressive debt-collecting behaviour of the privatised water companies (which being monopolists of an essential service did not have strong incentives to develop better customer relations), which was particularly unpopular in the context of sharply rising profits.

One of the subsidiary problems was the post-privatisation introduction, albeit slow and gradual, of household metering, as charging by property value was due to be ended by the year 2000. The financial impact of metering on certain users was exacerbated by significant differentials in some areas between metered and unmetered rates favouring unmetered users.133 This led to at times heated public debate over the financial impact of metering on low-income families, versus its impact on water efficiency and hence the environment, with Ofwat, the Environment Agency and most environmental groups supporting metering (though Friends of the Earth said the money was better spent plugging leaks), and some other NGOs strongly opposing it. Partly in response to NGO campaigns (eg Save the Children) on these issues, Ofwat introduced limits on the differential between metered and unmetered rates, and the Labour government in the Water Industry Act 1999 added additional safeguards on the impact of metering on vulnerable users. The abolition of charging by property value was also postponed indefinitely, although voluntary switching to metering was encouraged by no longer charging consumers to switch.

There was however a fundamental institutional difficulty in addressing the basic affordability issue, as it was not Ofwat’s responsibility to protect the minority of consumers having difficulty paying their bills – and indeed it did have the responsibility to avoid discrimination between groups of consumers. It argued, correctly, that it was the responsibility of government to tackle such poverty-related problems, especially as it was only in a very few cases where water bills stood out as a material factor (“water poverty”). It pressed companies to improve their debt management systems (especially by developing relationships with their customers), and encouraged them to provide payment methods more appropriate for those on low incomes, which led to BPUs. These proved controversial, although Ofwat maintained that consumers that had them were happy with them.

The Conservative government for its part did rather little, and when the new Labour government was elected in 1997 it focussed on the relatively few cases of water poverty among certain metered users (large families and those with certain medical conditions). In these cases users can apply to have their bill capped at the areas’s average, with the costs cross-subsidised from other consumers. After reviewing the matter again (including stakeholder consultation),134 the government in December 2004 again rejected consumer groups’ demands for targeted assistance through the tax credits and benefits system, in favour of supporting water efficiency and tweaking the existing Vulnerable Groups Regulations.135

5.3.3 Non-payment sanctionsA constant and powerful strain of criticism was that cutting off water supplies (“disconnection”) endangered the health of the household and of the public. The water companies were further criticised for failing to notify cut-offs to the local authority, despite their statutory duty to do so and the attendant health risks of not reporting.136

* The Social Security Act 1986 (taking effect 1988) meant that many consumers got a separate water bill for the first time. Previously it had been part of rent in local authority housing, and treated as rent for private tenants on social security. Afterwards, the 6m poorest on social security only got a notional average support for water, and an average based on outdated rates. The combination of a new bill (payable monthly, when many poor budget weekly) and sharply rising prices post-privatization was a blow to the poorest, leading to rising cutoffs (Robin Simpson, Consumers International, 10 March 2004, personal communication; and Tony Blair, The Times (London), 29 March 1988, “Commentary: Trial by water rate”).

31/01/2005 Page 22

www.watertime.org

From 1990 to 1991 there was a trebling of the number of cases of dysentery reported in England and Wales, coinciding with a trebling of the number of disconnections; but also coinciding with a six-fold rise in dysentery in Scotland, where disconnection was illegal.137 Although no direct causal link with dysentery could be shown, the British Medical Association argued that disconnection was a general public health hazard, and joined other NGOs such as the NCC in calling for a ban.138 This public pressure was a key factor in Labour MP Helen Jackson, chair of the all-party parliamentary Water Group, proposing a bill in Parliament in May 1993 banning disconnection.139 By July 1994 this had become Labour Party policy.140

Disconnections of domestic water supply in England and Wales 1989-1999Year 1989/90 1990/1 1991/2 1992/3 1993/4 1994/5 1995/6 1996/7 1997/8 1998/9Households disconnected

8,426 7,673 21,282 18,629 12,452 10,047 5,826 3,148 1,907 1,129

Source: OFWAT (1998)

Under public pressure and with disconnection made more difficult by new Ofwat guidelines in 1992, the companies started using BPUs for customers unable to pay their bills. BPUs supplied water only when charged, and thus operated as self-disconnecting meters. By 1996 over 16,000 had been installed, according to Ofwat, which led to “a startling increase in the number of hidden disconnections associated with these meters”.141 Customers also had to pay the BPU installation costs, which in the Severn Trent area were around £26, amounting to 10-15% of the bill a customer was having difficulty paying.142 Worse, the devices really were set up as budget payment units rather than pre-payment meters – which meant that when customers self-disconnected through non-payment they saved no money, remaining liable to the same annual water bill. Severn Trent made particular use of the devices, and as a result Birmingham City Council, together with some other concerned councils, launched a court case against their use, winning it in February 1998. Multi-utility Hyder responded by experimenting with loading its customers’ water debt on pre-payment electricity meters, where these were installed, so that customers had to pay off their water debt to keep the lights on – but this too was later outlawed.143

By this time Labour had come to power in 1997 committed to ban disconnection and prepayment meters, which it did in the Water Industry Act 1999, against the wishes of Ofwat, which argued that disconnection rates had fallen dramatically and that customers were happy with BPUs. Moreover the abolition of such non-payment sanctions would lead to an increase in bad debts.144 The CSCs’ role in this process is interesting both for what they did and did not do. They did not play a prominent role in campaigning for an end to disconnections or to BPUs: on the contrary, they consistently supported the position of both Ofwat and the companies that these powers were needed, arguing that other customers would ultimately have to shoulder any increase in bad debts resulting from a ban. The ONCC and CSCs did however play a clear positive role in the administrative initiatives of Ofwat, through raising issues, getting the companies to adopt codes of practice, and monitoring the observance of those codes.

5.4 Environmental regulationIn 1995 Britain suffered a drought, causing supply difficulties in many parts of the country, and necessitating measures such as hosepipe bans and drought orders (permitting greater abstraction from rivers than usual). In West Yorkshire, more than 600,000 people were close to 24-hour rota cuts as reservoir supplies dwindled in the drought.145 The supply situation became so bad that in September 1995, Yorkshire Water began ‘tankering’ (hauling by road in tanker trucks) water to refill reservoirs there, which had reached dangerously low levels. At the height of the operation over 700 tankers were in use, 24 hours per day. It ended in January 1996, as reservoir levels improved, and had cost Yorkshire Water around £47m.146 This operation was accompanied by a range of emergency measures, including restrictions on consumption, permission for increased abstraction, and major investment in infrastructure (including £110m in a new grid to ensure flexibility of distribution of available resources147), and together with a return to normal rainfall conditions, supplies returned to normal by late 1996. The decision to undertake this extraordinary operation, in order to avert the failure of the water supply system in West Yorkshire, was underpinned both by an exceptional drought, and by a conjunction of a series of previous decisions, both short and long-term.

31/01/2005 Page 23

www.watertime.org

Ofwat suggested in 1996 that Yorkshire Water PLC’s serious failures to ensure a reliable and continuous supply, as well as to control leakage and flooding from sewers, had to be related to the company’s dividend policy.148 Its enquiry team found that the company had in 1990 set a target of a 39Ml/d reduction in leakage for 1994-5, and that the company estimated leakage had actually risen by 46 Ml/d over the period. This difference of 86 Ml/d caused the bulk of the 110Ml/d excess supply needed in 1994-5, which caused a critical strain on the company’s water resources and meant it was unprepared to face the drought that occurred. Ofwat also noted that the £50m special dividend Yorkshire paid to its parent company in summer 1995 was “not appropriate in the circumstances”.

Discovering that the imposition of drought orders meant that companies were not liable to pay compensation for interruption to supply, Ofwat persuaded many of the companies to pay compensation voluntarily, and 14 of them accepted changes to their licences to formalise the new arrangement.149 Ofwat was also able to effectively fine Yorkshire Water £40m for its failings during the drought, by requiring Yorkshire Water to limit its price rise for several years.

5.4.1 LeakageAfter privatisation there was a rising trend in leakage rates, which reached a peak in the drought year of 1995, and as noted above contributed substantially to Yorkshire’s problems. Leakage rates were not regularly reported until after the drought, even though the companies had said that leakage control was a crucial part of their water management strategy. None of the companies achieved their 1990 leakage targets for 1994-5, but this passed with little comment until 1995;150 Ofwat thought companies’ inherent financial incentives enough in regard to leakage.

The failures during the 1995 drought of Yorkshire Water in particular were used by Labour as part of their election campaigning on water, and strengthened the intentions of the Labour Party to take a serious look at the industry. Shortly after taking office they in May 1997 they called a “water summit” with various industry actors, among other things to look at leakage.151 At the summit Ofwat announced for the first time mandatory company leakage targets,152 assuring the Government that it had the matter in hand; although its methodology – deriving from a financial rather than an engineering perspective – was later criticised among others by a Parliamentary committee.153 Ofwat was keen to defend the “economic leakage level” (ELL) concept to prevent unnecessary spending and hence price rises.

Since the peak in 1995, leakage in England and Wales has fallen, as shown in the table below, from 31% of the 16,598 Ml/d put into supply in 1994-95 to 22% of the 15,058 Ml/d put into

supply in 1999-2000.154 Leakage rates in litres per property per day fell from 228 in 1994-5 (the peak since privatisation) to 154 in 2003-4.155

Company Total leakage (Ml/d) Total leakage (l/property/day Total leakage (m3/km/d)1994-95 1999-

20002001-2004 average

1994-95 1999-2000 2001-2004 average

1994-95 1999-2000

2001-2004 average

Anglian 236 190 207 136 103 109 7 5 6Dwr Cymru 390 288 243 315 223 185 16 11 9North West 874 487 465 290 157 149 22 12 11Northumbrian 187 168 115 171 149 117 12 10 9Severn Trent 665 340 427 213 106 131 16 8 9South West 145 84 84 215 118 116 10 6 6Southern 133 93 92 139 94 91 10 7 7Thames 1,078 662 861 324 193 248 35 21 28Wessex 140 88 78 283 171 147 13 8 7Yorkshire 546 317 298 271 152 142 19 10 10

Leakage ratesSource: Ofwat (various)

31/01/2005 Page 24

www.watertime.org

6 Cardiff episode: Rise and fall of a multi-utility, 1989 - 2000

6.1 Background: Welsh Water in the 1990sWelsh Water has the longest coastline of the 10 Water and Sewerage Companies (WaSCs), and in 1989 eleven of its designated beaches failed to meet EC standards for bacteria, and had to be brought up to standard by 1995. In addition, one in six of its 909 wastewater treatment plants did not meet the EC “discharge consent conditions” and had to be brought up to standard by 1992. However, in this Welsh Water was better off than the other WaSCs, as the average was one in four. It also benefited from the fact that its territory is not contiguous with that of Wales: Welsh Water includes some wealthy parts of western England, and parts of rural Wales – with the contingent higher costs – are served by Severn Trent.156

To help with the planned £1.8bn 10-year investment programme, the government (as for other WaSCs) wrote off debts and provided a “green dowry”: in the case of Welsh Water, £473m and £150m respectively.157 Furthermore, with interest rates of 15% in 1990,158 this cash injection was particularly valuable – Welsh Water had paid nearly 11% interest on its debts in 1988-9, amounting to a £50.8m interest bill.159 The additional interest income enabled Welsh Water to increase investment, particularly in wastewater treatment.160 In June 1992 Welsh Water announced that it would limit real annual price rises in the next three years to 5%, although its price limits set in 1989 permitted 6.5%.161 This followed pleas from Ofwat for restraint on price rises,162 and the announcement in July 1991 of its takeup of its option of an interim Periodic Review, to take effect after five years instead of ten.163

6.2 From Welsh Water to HyderThe logic of a water and electricity multi-utility had originally been suggested as early as 1988, prior to water and electricity privatization.164 Welsh Water had eyed South Wales Electricity (Swalec) as early as 1990, buying a 9.95% stake in December;165 later raising it to 14.9%. Its interest was however thwarted as Swalec rejected Welsh Water’s approach, and the government’s golden share allowed it to prevent a hostile takeover (as the articles of association limited shareholders’ voting powers to 15% each, and this limit could only be removed by government consent).166 Welsh Water sold its Swalec stake in December 1992.167

Despite this setback, by 1991, Welsh Water was, like the other WaSCs, already beginning to diversify in other ways, owning five luxury hotels and 21 leisure facilities, developing an international joint venture in environmental consultancy, and entering a waste disposal and street cleaning joint venture with SAUR UK to clean streets for a dozen local authorities.168 It had also inherited the status of being the largest land owner in Wales with 93,000 acres,169 moved into IT services,170 and even acquired a share with a Norwegian company in a fish farm.171 In August 1991 its chairman, John Elfed Jones, defending his 88% salary increase and the company’s diversification strategy, remarked that Welsh Water was a “mini Mitsubishi, capable of spawning many businesses”.172 In October 1991 public criticism of this strategy had got so bad that it spent more than £1m on a publicity campaign to improve its image,173 but continued its strategy nonetheless. By 1996 its subsidiary Hyder Infrastructure Developments had 3000 staff, working on road, rail and port developments in China, Thailand, Kuala Lumpur and Hong Kong,174 and Hyder had, for example, a 40% stake in a Docklands Light Railway PFI project.175

The government’s golden shares in the privatised water and electricity companies lapsed in January and April 1995 respectively,176 and led to a wave of speculation on mergers between and within the sectors. Exceptionally, Welsh Water remained protected from takeover until 1996.* Swalec was considered among the likeliest targets because as well as good profits the regulator declared that 1992-3 costs were 9% above the industry’s lowest, suggesting possible efficiency savings.177 Welsh Water took over Swalec in January 1996, creating a multi-utility called Hyder.

* Uniquely, Welsh Water’s 15% limit on individual shareholder voting rights did not expire automatically after five years. The removal of the limit required a 75% approval from the shareholders, which was obtained in March 1996. (Thomas 2000:190, footnote 38)

31/01/2005 Page 25

www.watertime.org

6.3 HyderAs multi-utilities go, Swalec and Welsh Water were a good match: nearly all of Swalec’s area of operation fell within Welsh Water’s area, and the majority of Welsh Water’s customers were located in the Swalec area.178 The £872m deal was financed largely by debt. The merger was supposed to create economies of scale and scope, as well as short-term tax savings from the around £770m debt financing necessary for the acquisition. Some of the service activities with greatest overlap (e.g. IT) were transferred to a Hyder Services subsidiary serving both the water and electricity divisions.

The new company, Hyder, emphasized the importance of operating under a brand name, and saw itself as moving from being an old-fashioned utility to being ‘a rapidly developing infrastructure services company initiating ideas and solutions’. Its Chief Executive even compared Hyder to Marks & Spencer, a well-known British department store: Hyder would provide a range of services to its customers, because its customers would trust it. The name “Hyder” itself, as well as nodding in the direction of the Greek word for water, could, when pronounced in the Welsh language fashion, be translated as ‘confidence’.179

Based in Cardiff, Hyder in the mid-to-late 1990s became the most highly-valued Welsh company on the London Stock Exchange, and Wales’ largest indigenous and independent private sector employer, with around 7500 workers plus another 1500 overseas.180 Its turnover quadrupled from the £293m posted in 1990-1, and its share price peaked at 1048p in January 1998, equating to a £1.47bn stock market value.181 As well as becoming a multi-utility by expanding into electricity (and later gas), it diversified into a wide range of other areas, and by 1998-9, non-regulated businesses accounted for 24% of group profits before interest.182

6.4 Fall of HyderAt the time of the 1999 periodic review, Hyder was financially vulnerable for several reasons, and the harsher review outcome than expected led Hyder to undertake a strategic review, and made a takeover likely. Hyder was vulnerable above all because of its high levels of debt, which (following zero net debt in 1992-3) arose largely from its takeover of Swalec (c. £770m), the windfall tax (£282m), and its (1995-2000) £1.3bn capital investment programme. There was also a small impact (£20m) from the ban on disconnections and prepayment meters.

Net interest payable in 1996-7 doubled from £45m to £95.1m, mainly because of the debt taken on to finance the January 1996 Swalec takeover. However, profits nearly doubled from £112.9m to £208.2m, turnover rose from £651.6m to £1.14 billion,183 and the merger also enabled 500 jobs to be cut, and £35m of cost savings, within a year.184

Although the size of the 1997 windfall levy on the water sector was higher than expected, the City remained largely positive about the sector, seeing no fundamental change.185 However Hyder’s £282m bill was around £90m higher than expected,186 and Hyder’s bill was relatively high compared to other utilities, including the other water-and-electricity multi-utility, United Utilities.* Hyder, together with several other utilities and supported by the Conservatives, lobbied the government to change the formula on which the levy was based,† without success.187 In the event,‡ Hyder paid the bill from a $500m bond issue in the US, with the

* “It may be noted that the windfall tax charge of £281.9 m … represented 24% of Hyder’s market value compared with a water sector average of 10% and 12.5% for United Utilities.” (Thomas 2000:183, footnote 12) † The bill was 23% of “excess profits”, which were calculated using a formula based on post-tax profits in the first four years from flotation. Suggestions made were that profits be calculated using only regulated businesses, and not the whole group, and exclude exceptional items, in order to avoid penalising successful diversification and rewarding failure. For instance, East Midlands Electricity which diversified unsuccessfully and made many provisions in its profits had a lower bill than the smaller company Seeboard which stuck more or less to its core business during that time. (FT Energy Newsletters - Power UK, 22 July 1997, “Windfall worries for Hyder debt”; David Wighton, Financial Times (London, England), 15 July 1997, “MPs set for last assault on windfall tax”)‡ “... the initial preference (unlikely to have received Ofwat approval) [was] to cut back on discretionary environmental spending and abandoning the customer rebate scheme.” (Thomas 2000: 183 footnote 13)

31/01/2005 Page 26

www.watertime.org

balance going towards its investment programme,188 amid concerns about its gearing and interest cover, which had led to its credit rating being lowered.189

Hyder was also hit by the ban on disconnection and prepayment meters, the latter being used by around 30,000 water customers,190 and by a High Court decision that its Two in One scheme (paying water debt via electricity meter pre-payment schemes) contravened the Electricity Act. Hyder allocated a total charge of £20m in 1999-2000 to cover these costs.191

In November 1998 there was already widespread speculation that the 1999 periodic review would result in an initial price reduction of 15-20%, which would mean £60-80m lower annual revenues for Hyder.192 In April 1999 Hyder asked for a 5.3% annual real terms rise, in view of the government’s required £1.7bn capital programme (higher than Hyder had envisaged*), and including a 1.8% rise to take account of lost income from free meter installation (which was introduced by the 1999 Water Act) and consequent switching rates.193 In the event, the 27 July 1999 draft determinations for Hyder were for an average reduction over five years of 3.0%, with a 13.8% reduction in the first year.194 These were adjusted slightly in the final determinations, to 1.9% and 10.5% respectively. The industry average was 2.1% and 12.3% respectively.195

Dwr Cymru price determinations,† 1999 Periodic Review196

The draft limits were adjusted following guidance from Ministers on environmental requirements in particular, which required additional capital expenditure.‡ The price limits for Hyder assumed an average reduction over five years of 21% in operating costs, 10% in capital maintenance costs, and 17% in investment costs.197 Price cuts imposed on Hyder’s water business by Ofwat were exacerbated by price cuts (of 26% in 2000) imposed on the electricity business by Ofgem.198

In the second half of 1999, Hyder was in crisis management mode, its share price falling by two thirds (from over 700p in July)199 as Hyder weighed up its options for financing its £1.6bn debt in the face of a price review which would significantly reduce operating profit in the next year, and a £1.7bn five-year capital programme. There were suggestions that Hyder was just months away from breaking some banking covenants on interest cover, although Hyder denied this. In September 1999, Hyder instituted a strategic review to examine its options following the price review and capital investment programme.

In December it shocked the City by declaring pre-tax profits down 31% to £73.6m.200 It announced plans to cut 1000 jobs in the regulated water and electricity businesses and related managed services subsidiaries, 20% of the 5200 workforce. It also decided to cut the year’s dividend by 60%,201 having already been the only water company not to increase the dividend in real terms the year before. Hyder’s preferred option of a £450m share issue was opposed by investors, who argued instead for a sale of some of Hyder’s assets,

* Partly because of the March 1999 Environment Minister’s guidance, which included the requirement that sewage from areas with populations of 2000 or more (previously 10,000 or more) receive secondary treatment. (Ofwat 1999: 20) † Dwr Cymru won an interim determination from Ofwat in December 2000, allowing a further £6.80 increase in average household bills by 2004-5, due to a number of higher costs, such as cryptosporidium monitoring requirements imposed by the DWI. http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/Content/dwrcymrufinal‡ “We may … note Hyder’s claim that it particularly suffered from Ofwat’s failure to take into account in its regulatory determinations the considerable differences in the operating environments of the various water and sewerage companies in England and Wales. For example, Welsh Water had 842 waste water treatment plants to serve the same population as one for London. In addition the configuration of Welsh Water territory involved a substantial length of coastline.” (Thomas 2000:183, footnote 12)

31/01/2005 Page 27

www.watertime.org

notably Swalec, or even of Hyder itself.202 Hyder had been considered vulnerable to takeover even before the scale of the fall in profits was announced; the city had expected a 3% drop.203

A secular decline in the share price made takeover or break-up increasingly inevitable, as Hyder needed a capital injection for its investment programme for Dwr Cymru Welsh Water, which it looked unable to get from shareholders – and it could hardly carry much more debt. Hyder’s troubles were reflected in and exacerbated by its falling share price, which peaked at 1048p in January 1998, and fell to a low of 179p in March 2000,204 recovering to 363p in August 2000205 in the course of the takeover battle between Nomura and WPD.

6.5 Takeover battle, early-to-mid 2000By March 2000, Hyder’s share price had fallen below 200p, and investors opposed management’s preferred option of a share issue, while management opposed suggestions of a break-up of Hyder. A wholesale takeover of Hyder seemed likely, and on 18 April 2000 the Hyder board announced agreement on an offer from the Principal Finance Group of Nomura International, a Japanese bank.* A key part of Nomura International’s proposal was that the Hyder company and brand would remain, and that the operational headquarters of Swalec and Dwr Cymru would remain in Cardiff. Nomura’s previous attempt to buy into a British utility (the Energy Group, in 1998) had been rejected by ministers, who thought it inappropriate for a bank to buy a utility; Nomura then withdrew on pricing grounds. This time, any such concerns were overridden by Hyder’s financial straits, amid fears that without a takeover the company would collapse, obliging the government to step in.206

After Nomura’s recommended offer was posted to shareholders on 28 April, matters became more complicated. WPD (Western Power Distribution Ltd) – owned by the US’s PPL Corporation and Southern Company – announced it was considering an offer for Hyder, having apparently been considering a bid for Hyder’s Swalec, its primary target, for some time. WPD already owned the neighbouring electricity distributor formerly known as South Western Electricity, whose territory adjoined that of Swalec, and both had sold their retail businesses in 1999. WPD’s primary interest was to gain synergies from running these two pure distribution companies together, and if it needed to take over Hyder – a company five times its size – and break it up in order to achieve this, it was prepared to do so. 207

The idea of a non-profit company to bid for Hyder’s water assets in the event of a break-up had arisen in Hyder’s strategic review, and in April a group of Hyder directors created Glas Cymru Cyfyngedig, as a new and independent company limited by guarantee† based in Wales and registered under the Companies Act 1985.208 WPD therefore proposed to sell Dwr Cymru to it for a nominal £1, with Glas assuming £1.8bn in debts, to be financed by a £2bn bond issue, with the water services contract outsourced to United Utilities through a £450m contract.209 United Utilities’ chief executive from January 2000 was John Roberts, who had been chief executive of Hyder Utilities (a subsidiary consisting primarily of Dwr Cymru and Swalec) since October 1997. WPD suffered a setback when Barclays Capital withdrew its financing for the Glas Cymru proposal in early May, partly because of regulatory concerns. WPD dropped its plan to sell to Glas on 18 May, in response to concerns raised by Ian Byatt,210 proposing instead to itself outsource Dwr Cymru to United Utilities. The Glas Cymru proposal was considered and rejected again by Hyder itself in mid-July.

The terms of WPD’s 300p offer were declared on 31 May and posted to shareholders on 26 June. The Hyder board did not then recommend the higher WPD offer because of concerns about regulatory issues – notably the merger issues relating to WPD’s bid for electricity (the neighbouring distribution businesses) and water (the outsourcing arrangement with United Utilities). The DTI cleared Nomura’s bid on 7 June. WPD’s bid was cleared by the European Commission on 14 July,211 following a 7 July decision by the UK Competition Minister Kim Howells not to request the EC to refer the decision to the UK Competition Commission,‡ despite pressure from the Welsh Assembly. (The bid was notified to the European Commission because one

* In 1997 City analysts said banks were “awash with cash”, and that Japanese banks were “particularly eager”. (Patrick Hosking, The Evening Standard (London), 2 October 1997, “Windfall tax payers spurn bond houses”)† A company limited by guarantee has no share capital and is owned and controlled by members who do not receive dividends or have any other financial interest in the company.

31/01/2005 Page 28

www.watertime.org

of WPD’s American parents was involved in electricity supply in Berlin.) The DTI cleared WPD’s bid in early August, announcing that on the advice of the Director General of Fair Trading (DGFT), WPD’s arrangements with United Utilities did not constitute a merger situation.*

After regulatory issues with WPD’s bid were settled and the Hyder board had briefly re-examined the Glas Cymru option, Nomura bid 320p on 1 August, with WPD replying the same day with 340p. Six days later, on August 7, then Hyder chief executive Graham Hawker said the board now backed the WPD bid, having originally recommended Nomura's first 260p offer in April. Two days later Nomura trumped WPD at 360p.

It was at this point that the Takeover Panel intervened, creating a sealed bid auction. On 11 August WPD submitted a formulaic bid, of 5p above the Nomura offer, up to a ceiling of 375p. Nomura stuck to the 360p it had bid, and so WPD won with 365p a share, valuing Hyder at £564m.212 Nomura withdrew from the battle on 17 August 2000, having failed to persuade the Takeover Panel to disqualify WPD’s winning bid for infringement of some bidding rules. Nomura claimed that WPD had broken the panel's rules by failing to disclose its victory by the deadline of 4.30pm on 11 August, a failure blamed by WPD on a computer crash.213 Nomura also complained that the decision to adopt sealed bids was made less than 24 hours before the revised deadline for final offers. Deals had to be submitted by 1pm on 11 August 2000.214 A silver lining for Nomura was that it made £25m from the 16.2% stake it had built up in Hyder, plus a £5m break fee from Hyder.215

6.6 Break-up of HyderWPD had originally only been interested in Swalec, and accordingly, following its takeover of Hyder, it proceeded to dismantle it, selling 12 of the 53 active companies in 200 days, raising £300m.216 This included Hyder Industrial, sold to United Utilities, under an option gained through its support for the WPD bid.217

WPD’s initial proposal to sell Dwr Cymru to Glas Cymru was dropped in response to concerns raised by Ian Byatt, which had also caused Barclays Capital to withdraw from financing this proposal.218 This led to the proposal for WPD to outsource Dwr Cymru directly to United Utilities, since WPD had no interest or experience in water. Following WPD’s win in August 2000, it awarded an £800m outsourcing contract to United Utilities directly, subcontracting to United Utilities for up to 7 years before competitive outsourcing was introduced. In October the deal was judged to infringe European procurement laws, following a court case brought by Severn Trent.219 As a result WPD returned to the Glas Cymru proposal.

By November 2000, Glas Cymru had learned some lessons from regulatory and other reactions to its and Yorkshire Water’s proposals earlier in the year. In particular, the Welsh Assembly had set out a list of principles during the takeover battle, which it judged Nomura’s and WPD’s bids against, and found the latter wanting. Following Ofwat (2000)’s paper on New ownership structures in the water industry, there was also the series of publications and consultations that took place in June/July relating to Kelda’s mutualisation proposal, which raised much the same issues. Glas explicitly contrasted its proposal to Kelda’s.

Glas Cymru then strove to specifically address the concerns raised by Ofwat and by the Welsh Assembly, committing itself to principles the Welsh Assembly had laid down earlier in the year, and presenting to Ofwat a management remuneration and governance structure designed to meet its concerns about incentives for efficiency. It also sought to gain ‘informed consent’, with a public consultation programme and surveys of its potential customers (finding support from a small majority of the public, and much of the remainder agnostic220). The company emphasised that it was ‘a distinctly Welsh enterprise’ which would be highly responsive to local priorities, and that Welsh Water would be “owned once again by a company based,

‡ Rules regarding repatriation and referral to domestic authorities under Article 9 of the EC Merger Regulation explicitly focused on competition issues, and in accordance with the advice of the DGFT and the sectoral regulators, the DTI ruled that the WPDL bid did not satisfy the relevant criteria in the Regulation. As such, the DTI decided not to request repatriation and approved the bid (DTI Press Release P/2000/469, 7 July 2000).* This would have required a mandatory referral to the Competition Commission under the Water Industry Act 1991. (DTI Press Release P/2000/556, 2 August 2000, “Western Power Distribution Limited/Hyder plc”)

31/01/2005 Page 29

www.watertime.org

managed and controlled from Wales”.221 This helped win the broad cross-party support of the Welsh Assembly.222 In the course of several months’ negotiations over the details of the proposal Glas Cymru also won the backing of Ofwat, despite opposition voiced by some government departments, albeit largely in private.*

Ofwat’s backing was heavily based on support of stakeholders, notably the Welsh Assembly, and was backed up by various licence modifications and other guarantees, requiring for example a publicly-listed debt instrument and a detailed procurement programme, and forbidding diversification out of water. The concern about cash reserves – given the lack of equity capital – was met by the purchase of Dwr Cymru at a 5% discount to RCV, which created an implicit reserve of £150m in relation to Glas’ borrowing capacity.223 The planned retention of profits – boosted by anticipated savings on interest costs of £50m per year224 – would build these up to an acceptable level within several years.

Ofwat did emphasise its commitment to the equity-based ownership model, and cautioned that Glas Cymru was not to be taken as a model for the industry, emphasising the unique circumstances in Wales. (As one commentator put it, “Welsh Water invites radical solutions because it has been such a basket case.”225) In May 2001, Glas Cymru completed the acquisition of Dwr Cymru following a successful £1.86bn bond issue, and the completion in March 2001 of the outsourcing tender, with 4-year contracts going primarily to United Utilities (£450m) and Thames Water (£66m). Glas Cymru noted that Hyder had already outsourced a substantial proportion of its work, and that the figure would rise from around 60% of total costs to around 85%.226

* Notably John Prescott’s Department of Environment, Transport and the Regions, which feared similar problems as had arisen in the rail industry after its break-up and privatisation in 1995. By contrast the Treasury favoured changes to encourage competition for operations contracts, whilst the DTI favoured competition by common carriage. (Michael Harrison, The Independent, 27 November 2000, “Prescott to act as water industry restructuring threatens standards”) The Treasury was also concerned about ending up as the lender of last resort if Glas Cymru were to fail.

31/01/2005 Page 30

www.watertime.org

7 Leeds episode: restructuring, 1999 – 2002

7.1 BackgroundLike all the water companies, the price reductions anticipated in and later delivered by the 1999 Periodic Review (14.5% in 2000-2001, reducing profits in the regulated subsidiary by over 30%227) led Yorkshire Water to look for ways to reduce the impact of the review on shareholders’ returns.

Yorkshire Water price determinations,* 1999 Periodic Review228

Most companies’ reaction – Hyder’s debt burden from the 1996 takeover of Swalec left it in no position to do so – was to invest further in diversification out of the UK regulated water sector. The two primary routes were diversification into other sectors – notably waste management – and diversification into other countries. These strategies were pursued by all companies, perhaps most successfully by South West Water (waste) and Thames Water (overseas).

Yorkshire had also pursued these strategies, and in the new regulatory environment determined to do so even more, in 1999 aiming for the nonregulated business to reach 50% of turnover by 2005.229 In 1999, as well as engineering a reverse merger of its waste management division with the Waste Recycling Group, it bought into the US regulated water market – where return on capital, at 12%, was double the rate in the UK230 – spending £276m on taking over Aquarion (with 500,000 people served a relatively small company by British standards, but still one of the ten largest quoted water companies in the US).231 To emphasise the change, the group company (Yorkshire Water plc) changed its name to Kelda, keeping the regulated UK water subsidiary as Yorkshire Water Services (YWS).†

By early 2000, in the context of a share price that had fallen 40% in 16 months,232 and gearing that reached 83% (£1413m), there was increasing disagreement over strategy. Some of the board were unhappy at the recent US expansion, and there were suggestions of some form of separation of assets from operations.233 Such ideas were in the air, following discussions of such possibilities at Hyder (which led to the creation of Glas Cymru in April), and various ideas being promoted by the City. In May 2000 it was reported that “Ofwat officials said that "virtually every investment bank in London" was hawking around plans to convert the ownership of water companies so that the assets are financed by debt, not shareholders' equity.”234 Clashes over a strategic review announced on 11 April 2000 to examine such options235 led to the departure of chief executive Kevin Bond.

In April 2000 the Financial Times reported that “[o]ptions open to the company include selling its physical assets to a financial institution or selling the forward revenues generated by the assets in return for an upfront cash payment. Kelda would then reposition itself as a provider of operating services to the water industry and outsourcing services to the utility industry.”236

* An interim price determination was subsequently granted in December 2002, increasing price limits slightly. † Almost incidentally, the group in January 1999 finally took over York Waterworks, a small water-only company in the middle of Yorkshire, for £34m, as much as a defensive measure to prevent anyone else acquiring it ('we didn't want somebody else running it') as for potential efficiencies. (Paul Garrett, Utility Week, February 4, 2000, “The Lazarus Effect”)

31/01/2005 Page 31

www.watertime.org

7.2 Mutualisation proposalKelda’s board announced the results of the strategic review on 14 June, putting forward a proposal for a mutual society – a Registered Community Asset Mutual (RCAM) – to own YWS’s infrastructure.237 The mutual would take on the £1.4bn debt of the whole Kelda group (a fair proportion of which had originated outside the regulated business) and pay £1bn cash to Kelda, which could be paid out to shareholders and/or used for diversification. The proposal was confidently launched as a near-certainty to succeed, apparently in the expectation that customers would welcome the chance to gain ownership of the assets.* Mutualism was generally popular, even if the trends in areas such as building societies were towards demutualisation. Ofwat (2000)’s paper – a response primarily to the initial Glas Cymru proposal, though also in the context of Kelda’s announced strategic review – on New ownership structures in the water industry was published on 6 June. Ofwat issued a consultation paper on the Kelda proposal on 20 June,238 and a preliminary assessment on 25 July.239

The benefits to shareholders would have been substantial – as one headline put it, “City cheers mutuality proposal by Kelda”.240 The Lex column of the Financial Times summed up the advantages of the plan: “From the shareholders' point of view, spinning the water and waste assets into a mutual, financed entirely by debt, is all gravy.”241 Kelda expected to realise close to YWS’s Regulatory Capital Value (RCV) of £2.4bn, enabling it to return up to £1bn to shareholders, twice the value of their original investment, and on top of £350m paid out to them in dividends since privatisation.242 The day of the announcement, the stock market valued Kelda – including a range of other subsidiaries – at £1.4bn;243 and as energy regulator Ofgem remarked, “it is by no means clear that an independent board of a mutual will be prepared to purchase the assets at regulatory asset value if this exceeds the stock market valuation.”244

Kelda initially planned to install one of its non-executive directors, Derek Roberts, also the chairman of the pro-mutual Yorkshire Building Society, as the chairman of the RCAM. When he withdrew at a late stage,245 Kelda proposed its senior non-executive director (David Perry) instead, with an ex-director of YWS as the RCAM’s managing director, and an accountant who had worked for Yorkshire Water as finance director. Two more executive and two more non-executive directors would be appointed by Kelda after consultation with “Yorkshire institutions”, and just two non-executive directors would be elected by members (one by domestic customers, one by business).246 Local NGO WaterWatch noted that the independence of the RCAM from Kelda was questionable, especially given that two former directors of Kelda and YWS now representing the RCAM still held shares in Kelda.247

7.3 ReactionPublic reaction, especially in Yorkshire, was hostile to the detail, especially the sale price, though warm or at least neutral to the principle of moving away from private ownership.† Local trade union official John Kidd said: “The time has obviously come when the pigs have had their feed at the trough and there is nothing left.” Consumer group representative Pete Bowler, of WaterWatch, said that making customers buy for the second time something they owned in the first place was offensive, saying that customers had paid already for the building of new assets through increased bills since privatisation.248 The local Yorkshire newspaper, the Northern Echo, thundered in a leader:

“Yorkshire Water has amassed colossal debts, the core water supply business is struggling to make profit and the share price is depressed. The directors' answer to the mess they have created is to give the business back to the public. Having milked it dry with excessive dividends and excessive wages and share options for themselves, they are walking away. And even then they have the nerve to want to continue to run the company - no doubt at a profit - saddling the

* The day after the strategic review, Prime Minister Tony Blair was reported to be “understood to have given his full support to the idea”. (Nick Bevens, Evening News (Edinburgh), 15 June 2000, “Blair wants utilities back in public hands”)† The Trades Union Congress had supported the principle of mutuals in its response to Ofwat (2000)’s New ownership structures.

31/01/2005 Page 32

www.watertime.org

public with the £1.4bn debts they have left behind. The effrontery of these directors beggars belief.”249

Consumer resistance to taking on the responsibility of ownership, political resistance to such a structural change in the industry, as well as the difficulty of gaining regulatory approval, were all massively underestimated. This was perhaps not unexpected for a company which despite various changes in personnel over the years had displayed a talent for public relations mismanagement, above all the disastrous handling of the 1995 drought, which had ensured it had probably the worst reputation of any water company in Britain. This PR mismanagement was not incidental, as it reflected, even more than at other water companies, an overriding institutional concern with the priorities of shareholders, rather than with building relationships with customers. This approach could be traced back as far as the Yorkshire Water Authority’s decision, in the run-up to privatisation, to set up a company selling its customers’ contact details for mail order purposes.

On 5 July WaterWatch, supported by several councils (including Leeds) and local MPs, called for the Ofwat consultation deadline to be extended, from 17 July to 30 September, as well as for clarification of several legal and financial questions in order to inform the consultation. WaterWatch also criticised Ofwat’s CSC consultation, which for an issue of such widespread importance in Yorkshire had organised only one public meeting (in a county of 4.5m people), with little public awareness of the consultation.250

7.4 OutcomeIn the end the proposal for more extensive consultation was moot, even as the RCAM began to respond to some of the issues, proposing on 22 July to reduce the sale price by £83m to help provide a cash buffer.251 Following Ofwat’s announcement on 25 July 2000 that the proposals were unacceptable in their current form,252 Kelda responded by withdrawing their proposal “with the intention of seeking a way forward that is acceptable to the Director General of Water Services and others.” 253 Perhaps the key issue was that Ofwat required the “informed consent” of the customers, and in view of the risks they were being asked to bear through ownership of the assets, a vote or comparable procedure was suggested.254 It was clear even in the relatively short public consultation period that the likelihood of such consent being obtained on anything like the terms Kelda had proposed was negligible. As the case of Glas Cymru demonstrated only months later, other regulatory concerns – notably about efficiency incentives and lines of control and accountability – could likely have been tackled if Kelda had put its mind to it.*

After the rejection of the initial proposal by Ofwat, and Kelda’s decision not to try to amend the proposal, the mutualisation plan was dropped. So too were Kelda’s plans to develop into a diversified services company, as it sold its energy and waste interests to refocus onto water – primarily YWS, its US activities, and some consultancy and outsourcing services for water management. Reverting to a “boring” utility was an alternative way to cut the company’s risk and hence its cost of capital. In early 2002 Kelda did float one more proposal to sell 90-100% of YWS, this time to bondholders, but found that the bond market’s appetite for such a deal was low.255

* Although legal issues would remain – under the Water Industry Act 1991, a water appointee has to be a company within a meaning of the Companies Act 1985, which a mutual society is not; and as the Severn Trent challenge in the Glas Cymru case showed, outsourcing would need to be competitive from the start. (Pete Bowler, personal communication, 21 September 2004).

31/01/2005 Page 33

www.watertime.org

8 Participation and sustainability

8.1 ParticipationPublic participation for the privatisation episode was relatively limited, being primarily a deal done between the industry – especially the key players within it which were cheerleading the idea – and the Government, notably the Department of Environment and the Treasury. The result was a plan – for the wholesale flotation of the Regional Water Authorities, including their powers relating to environmental regulation – which was unacceptable to a range of actors outside the industry, even arousing disquiet in some other government departments. The plan also ignored the fact that a privatisation in this form might well contravene EC law, to say nothing of the widespread opposition amongst the general public to the principle of privatising what was seen as an essential public service. Maloney and Richardson (1994:124) accurately describe this failure of the original privatisation plan as reflecting “an inappropriate choice of consultation processes”, as the government believed it could make major decisions with minimal participation beyond the industry, and without reference to constraining factors such as EC law. The plan was later modified to split off the regulatory powers, and pushed through Parliament despite strong political opposition to the principle of privatisation – partly on the basis that the Conservatives had a mandate for the modified plan as it had been included in their manifesto for the 1987 general election, which they had won.

One of the perhaps unforeseen consequences of privatisation was that devolving much of water policy to various arms-length regulators would open up considerable new participation opportunities, as a previously closed policy process was opened up to public debate by virtue of the distribution of regulatory powers in different institutions. Moreover, various civil society actors took advantage of these new opportunities in the context of a privatisation decision which was controversial, and an industry whose performance became highly public and highly politicised. Participation became more complex with a much broader range of actors making use of a much greater public availability of relevant information. And in the context of increasing reregulation in the 1990s, the importance of the participation of consumers and political representatives as well as of NGOs was emphasised by the economic regulator, notably in the proposed restructurings of Glas Cymru and Yorkshire Water in 2000. In the latter case, the regulator’s decision that any restructuring would need the ‘informed consent’ of consumers was a key factor behind the proposal being dropped, as the company evidently believed from public reaction that this was unlikely to be gained (except perhaps by modifying the proposal so much that it would no longer be attractive to the company).

8.2 SustainabilityThe political sustainability of privatisation itself was largely assured early on, despite some noises made by the Labour party in the early 1990s. Following the massive rise in water company share prices, even a partial (51%) reversal of privatisation would have been extremely expensive. Combined with the EC-driven commitments to a massive capital investment programme which would then weigh on the public sector balance sheet, renationalisation was never a serious option.

Nonetheless, the light-touch regulation system as designed in 1989 was not sustainable. Issues such as disconnection, metering, high dividends and management payouts, prices, and later leakage, became intensely political issues which the regulator had to deal with, and the election of a Labour government in 1997 further reinforced this. Ten years after privatisation, regulation had become more and more detailed and a stronger and stronger influence on the nature and structure of the industry. In the longer term, there are some question marks over whether an excessive emphasis by the economic regulator on financial criteria may be endangering sustainability, notably the technical sustainability of the infrastructure at current rates of renewal. This risk may be eased when (if) EU environmental and water quality standards reach a steady state, enabling the capital investment needed to achieve these to level off, and possibly permitting more expenditure on renewal.

31/01/2005 Page 34

www.watertime.org

The long-term sustainability of the current government position (recently reaffirmed) on water poverty and water debt is also questionable. Following the ban on disconnection, water debts have risen substantially,* and are now the largest debt category in the courts. Bills will continue to rise in real terms for the foreseeable future, whilst further voluntary switches to metering (currently around 25% of consumers) are likely to lead to rising unmetered bills for those who will not benefit from switching, including large low-income families: the average unmetered bill will be 69% higher than the average metered bill in the South West by 2010.256 Changes to the social security system have again been rejected by the government, despite strong pressure from consumer organisations and from MPs;† the issue is not going to go away.

* Although most non-payers are unaware of the ban on disconnection, the lack of red warning letters threatening imminent cutoff means that customers juggling multiple bills prioritise companies with more active debt management systems (eg banks and mail order companies), especially where based on personal contact (Accent Marketing and Research (2003), “Paying for water research: Insights into how customers juggle water and sewerage bills in household budget”, Office of Water Services, September 2003).† The NCC said that the Vulnerable Groups scheme cost more to administer than was paid out to customers, and that take-up was only 1.4%. (House of Commons Environment, Food and Rural Affairs Committee, “Water Pricing”, First Report of Session 2003–2004, HC 121, December 2003).1 http://www.dwrcymru.com/English/About%20Dwr/main.asp2 http://www.leeds.gov.uk/documents/B6968A7C2420A59880256E7F003379EC.pdf3 Penrhyn Jones (1958)4 Steve Edwards, South Wales Echo, 28 January 2003, “Reservoir came to city's aid” 5 http://www.richardmayer.co.uk/fourtharch/localhistory/localhist4.htm6 http://www.richardmayer.co.uk/fourtharch/localhistory/localhist4.htm7 Steve Edwards, South Wales Echo, 28 January 2003, “Reservoir came to city's aid” 8 Penrhyn Jones (1958)9 Sellers (1997: 4-5)10 Sellers (1997: 4-5)11 Sellers (1997: 4-5)12 Sellers (1997: 2)13 Sellers (1997: 6)14 Sellers (1997: 6-7)15 Horan H. 2005. School of Civil Engineering, University of Leeds. Personal communication. 26 Jan.16 Sellers (1997: 24)17 Sellers (1997: 27)18 http://www.leeds-uk.com/history.htm19 http://www.leeds365.co.uk/briefhistory1.htm20 http://www.dwrcymru.com/English/About%20Dwr/main.asp21 Dwr Cymru (2003:4)22 http://www.dwrcymru.com/English/Contact%20Us/main.asp23 Ofwat (2004: 76)24 Dwr Cymru (2003:3-4)25 Source: Dwr Cymru, “Our scheme of charges 2004/2005”, February 200426 http://www.dwrcymru.com/English/About%20Dwr/main.asp27 Dwr Cymru (2003:11)28 http://www.yorkshirewater.com/yorkshirewater/main_about.html29 http://www.yorkshirewater.com/yourenvironment/leakage.html30 Joe Murphy, Mail on Sunday, 28 June 1998, “Water fat cats cash in again; Brown 'livid' at 30% bonuses” 31 “UK’s Ofwat says Yorkshire Water dividend policy “should not impair” business”, AFX News: 20 Jun 199632 Martyn Halsall, The Guardian (London), 27 February 1997, “One Yorkshireman against the tide; Martyn Halsall on how shareholder stemmed the flow at water company”33 Chris Tighe, Financial Times (London, England), 11 July 1997, “Bonuses at Yorkshire Water despite opposition”34 Shaoul (1998: 20)35 Ofwat (2004: 76)36 http://www.yorkshirewater.co.uk/pdf/account/summary.pdf37 Hassan (1998 : 132)

31/01/2005 Page 35

www.watertime.org

Annex: Data Tables

CardiffWater and wastewater undertaking profile

Undertaking identification Dwr Cymru Welsh Water

Geographical scope Most of Wales, including Cardiff, and some adjoining parts of England

Type of activity Water supply, sewerage and wastewater treatmentType of assets ownership Trust (Glas Cymru Cyfyngedig)Type of operations Trust/Private (Dŵr Cymru/Welsh Water, owned by Glas,

operates system via subcontracts to other private companies)

Total personnel (no) 142 (plus est 4000 in subcontractors)Outsourcing (%) 85%Annual costs (EUR/a) £325mAnnual revenue (EUR/a) £463m

Annual investment (EUR/a) £259mTariffs (EUR/m3) See section 3.1.1

Source: Glas Cymru Annual Report 2004. All 2003-4 unless otherwise stated

Region profile

38 Maloney and Richardson (1994: 115)42 Maloney and Richardson (1994: 114)43 Hassan (1998: 155)39 Hassan (1998 : 127)40 John Humphries, Financial Times (London, England), 7 February 1989, “Seeking A Way To Solve The Ridley Riddle; UK Water Privatisation”

31/01/2005 Page 36

www.watertime.org

PERSONNELNo of connections 1,466,000261

Total personnel per 1000 connections 0.1 (directly employed); est 2.7 (including outsourcing)

LeedsWater and wastewater undertaking profile

Undertaking identification Yorkshire Water

Geographical scope Yorkshire, including Leeds, and beyondType of activity Water supply and sewerage and wastewater treatment

* http://www.cardiff.gov.uk/cardiff/facts/Employment/Employment_%20Economy_Stats.pdf† http://www.met-office.gov.uk/climate/uk/averages/19611990/sites/cardiff.html41 Hassan (1998: 133)* Proportion of raw materials/consumables plus “other external charges”.44 David Kinnersley, Financial Times (London, England), 11 April 1984, “The dangers of a tax on toilets and taps - Water Rates”45 Bakker (2003: 62)46 Bakker (2003: 62)47 Michael Howard, The Times (London), 5 March 1989, “Cheers to a purer environment; Britain's polluted rivers”48 Hassan (1998: 149)49 Bakker (2003: 63)50 Barraqué (1995: 234-5)51 Maloney and Richardson (1994: 115)52 Maloney and Richardson (1994: 117-8)53 Lobina, Emanuele, and Hall, David (2001), “UK Water privatisation – a briefing”, PSIRU, University of Greenwich, p654 Financial Times (London, England), 6 February 1986, “A dry policy for water”55 Maloney and Richardson (1994: 119)56 Richard Evans, Financial Times (London, England), 5 February 1986, “Dangerous currents in the privatisation pool” 57 David Fanning, Investors Chronicle, 18 October 1996, “Hawker Interview: Graham Hawker - The water wizard - The persuasive chief executive of Welsh utilities and infrastructure group Hyder has helped it quadruple its turnover in four years. But analysts' views about its future remain mixed”58 Richard Evans, Financial Times (London, England), 5 February 1986, “Dangerous currents in the privatisation pool” 59 “The outline proposals, which were drawn up by the Treasury, were originally shelved in the Autumn after most sponsoring department Ministers and nationalised industry chiefs objected. Undaunted, the Treasury resurrected the proposals and sneaked them into the Commons library on the day that Parliament broke up for the Christmas holiday. The Treasury has invited responses from all sides, but the aim must be to introduce legislation in the next Parliamentary session, time permitting. If adopted, the Treasury's proposals would represent the most radical shake-up of the nationalised industries since many were first taken into the public sector after the second world war. In theory the six-point programme is intended to 'tidy up' the existing myriad of complex legislation which governs the 20 nationalised industries, replacing it with new powers that would provide 'clear guidelines' for public sector corporations to operate as successful, commercial businesses. But the Bill would permit Ministers to set stringent financial targets, make it simple for the Government to get its hand on a successful public corporation's accumulated profits and make it easier to sack any nationalised industry that a Minister may disagree with.” (Michael Smith, The Guardian (London), 9 February 1985, “Financial Notebook: Why the country should be grateful to Old Father Thames Water Authority / Controversy over government plans to increase water rates”)60 Richard Evans, Financial Times (London, England), 25 November 1989, “The Water Sale; Privatisation, a bridge over troubled water”61 Richard Evans and Walter Ellis, Financial Times (London, England), 26 January 1985, “Thames swims against the tide; Row over water charges” 62 Richard Evans, Financial Times (London, England), 9 February 1985, “Where the price is not right”63 Richard Evans, Financial Times (London, England), 5 February 1986, “Dangerous currents in the privatisation pool” 64 Michael Smith, The Guardian (London), 9 February 1985, “Water row in full flow / Government decision to increase water prices”65 Maloney and Richardson (1994: 120-1)

31/01/2005 Page 37

www.watertime.org

Source: Yorkshire Water Services Annual Report 2004. All 2003-4 unless otherwise stated

Region profile

66 Richard Evans, Financial Times (London, England), 25 November 1989, “The Water Sale; Privatisation, a bridge over troubled water”67 Maloney and Richardson (1994: 120)68 Maloney and Richardson (1994: 119)69 Richard Evans, Financial Times (London, England), 9 February 1985, “Where the price is not right”70 Richard Evans, Financial Times (London, England), 9 February 1985, “Water body 'keen to be privatised'”71 Maloney and Richardson (1994: 121)72 Michael Smith, The Guardian (London), 24 May 1985, “Thames Water 'worth a billion' / Privatisation plan”73 Engineering News-Record, 18 July 1985, “Water privatization on tap”74 Maloney and Richardson (1994: 119)75 Hugh Clayton, The Times (London), 3 February 1986, “Driving force in a grand plan / Career profile of Roy Watts, chairman of the Thames Water Authority (372) /SCT”76 Richard Evans, Financial Times (London, England), 5 February 1986, “Dangerous currents in the privatisation pool” 77 Richard Evans, Financial Times (London, England), 25 November 1989, “The Water Sale; Privatisation, a bridge over troubled water”78 The Secretary of State for the Environment et al., “Privatisation of the Water Authorities in England and Wales”, Government White Paper, February 198679 Maloney and Richardson (1994: 122-3)80 Richard Evans, Peter Riddell, Financial Times (London, England), 4 July 1986, “Flotation Of Water Authorities Put Off In Surprise About-Turn” 81 John Ardill, The Guardian (London), 15 May 1987, “Referee sought on water fouling”82 The Economist, 12 December 1981, “Legislation; Against the law”83 PR Newswire Europe, August 16, 1988, “Private water authorities may be immune from prosecution for dirty water”84 David Brindle, Financial Times (London, England), 3 June 1987, “Thames Water To Attack Sale Plan” 85 Michael Smith, The Guardian (London), 16 September 1987, “Split on water sell-off”86 Richard Evans, Financial Times (London, England), 3 September 1987, “Water Flotation Plan Faces Tide Of Opposition” 87 David Walker, The Times (London), 16 September 1987, “Ridley muddies the sell-off water”88 Maloney and Richardson (1994: 125)89 Richard Palmer, The Times (London), 22 October 1989, “Ministers allow river pollution”90 Andrew Taylor, Financial Times (London, England), 19 December 1987, “Whitehall Creates Water Industry Post” 91 Richard Evans, Financial Times (London, England), 25 November 1989, “The Water Sale; Privatisation, a bridge over troubled water”92 Paul Brown, The Guardian (London), 4 October 1989, “EC set to ban sea dumping of raw sewage”93 William Dawkins, Richard Evans, Financial Times (London, England), 20 July 1989, “EC Vows Court Action On UK Water” 94 Hassan (1998: 167)95 Richard Evans, Andrew Hill, Financial Times (London, England), 21 July 1988, “Water Authorities To Be Sold Simultaneously At End Of Next Year” 96 Richard Evans, Financial Times (London, England), 20 July 1988, “Back In The Privatisation Pool” 97 Richard Evans, Financial Times (London, England), 31 May 1988, “Water Industry Leaders Split On Merits Of Simultaneous Flotation” 98 The Economist, 8 October 1988, “Water privatisation; Down the river”99 The Economist, 30 July 1988, “Cabinet changes; Quiet, kind”100 John Humphries, Financial Times (London, England), 7 February 1989, “Seeking A Way To Solve The Ridley Riddle; UK Water Privatisation”

31/01/2005 Page 38

www.watertime.org

101 The Independent, 17 March 1989, “Outlook: Mrs Thatcher walks on water”102 Bakker (2003: 68)103 Andrew Cornelius and Patrick Donovan, The Guardian (London), 3 August 1989, “Splashing out on water: Privatisation will not lack for critics, but the City will not be pouring cold water on it”104 Anthony Moreton, Financial Times (London, England), 11 September 1989, “Wales 7; Big Spending Lies Ahead”105 Shaoul (1997: 390)106 Bakker (2003: 68)107 Alan Travis, The Guardian (London), 11 February 1989, “Council suit could delay water sell-off”108 Jo Caseby, Press Association, 17 May 1990, “Councils lose water compensation claim”109 Ying Hui Tan, The Independent (London), 18 May 1990, “Law Report: Councils not entitled to water compensation; Sheffield City Council v Yorkshire Water Services Ltd and another and other related actions. Chancery Division (Sir Nicolas Browne-Wilkinson, Vice-Chancellor). 17 May 1990.”110 Ares and Young (2003: 36)111 OFWAT Memorandum 18 March 1998, in House of Commons Research paper 98/117 December 1998112 National Consumer Council (1997: 9)113 Shaoul (1997: 400)114 Graham Searjeant, The Times, 12 May 2000, “Ofwat may act to stop water firm mutuality”115 Ofwat (1999: 22)116 Shaoul, 1998, p. 19117 Observer 12 Feb 95118 Shaoul 1998 p. 20119 Michael Harrison, 12 May 2000, The Independent, “Business: Byatt voices concern over water company plans to split assets from management”120 Smith and Hannan (2003: 31)121 Nigel Hawkins, Utility Week, 17 October 2003, “Privatisation under pressure; The water privatisation settlement is under threat from spiralling capital expenditure levels, debt finance and merger policy.” 122 Water Act 1989 s.6 (now Water Industry Act 1991 s.28)123 The Ofwat National Customer Council And The Ten Regional Customer Service CommitteesDraft Forward Plan 2001- 2002. April 2001124 Consumer Representation in the Public Utilities, NCC, 1995.125 Ibid, p.39-40126 Roy Wardle, WaterVoice, 26 August 2004, personal communication.127 Ibid, p.58-63128 Unclear Waters Unclear Waters. Consumer prices and water company financial information. NCC December 1997.129 Ofwat. http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/Content/WaterVoice+Council+Press+Notice+10%2F04130 Ofwat. http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/Content/WaterVoice+Council+Press+Notice+10%2F04; DEFRA. http://www.defra.gov.uk/news/2004/040407c.htm131 Office Of Water Services, 21 November 2003, “OFWAT welcome as Water Act receives Royal Assent”132 Tony Blair, The Times (London), 29 March 1988, “Commentary: Trial by water rate”133 David Brindle, The Guardian (London), 8 November 1993, “Water meter bills are 'health risk'”134 DEFRA (2003), “A consultation paper: Reductions for vulnerable groups”. DEFRA, February 2003. http://www.defra.gov.uk/corporate/consult/vulnerable/waterchrgvulgps.pdf135 Karma Ockenden, Utility Week, 10 December 2004, ”No extra cash to help poor pay their water bills” 136 House of Commons Official Report, 10 December 1993; Vol. 234, c. 395.137 Lea and Nawaz (1994: 15)138 Lea and Nawaz (1994: 17)

31/01/2005 Page 39

www.watertime.org

BibliographyAres, Elena, and Young, Ross (2003), The Water Bill [HL]: Bill 149 of 2002-03, House of Commons Library Research Paper 03/67, 4 September 2003. http://www.parliament.uk/commons/lib/research/rp2003/rp03-067.pdf

Bakker, Karen (2003), An Uncooperative Commodity: Privatizing Water in England and Wales, Oxford: Oxford University Press

Bakker, Karen (2002), “From public to private to…public? Re-regulating and “mutualising” private water supply in England and Wales”, Economic geography working paper series WPG 02-15, School of Geography and the Environment, University of Oxford

139 David Nicholson-Lord, The Independent (London), 12 May 1993, “Water disconnection increases 'alarming'” 140 FT Energy Newsletters - Water Briefing, 29 July 1994, “Review follows long period of Criticism from Many sectors”141 House of Commons 8 May 1996: Column 151 Water Meters. http://www.parliament.the-stationery-office.co.uk/pa/cm199596/cmhansrd/vo960508/debtext/60508-01.htm#60508-01_spnew0142 House of Commons 8 May 1996: Column 151 Water Meters. http://www.parliament.the-stationery-office.co.uk/pa/cm199596/cmhansrd/vo960508/debtext/60508-01.htm#60508-01_spnew0143 FT Energy Newsletters - Global Water Report, 20 November 1998, “United Kingdom: disconnect outlawed”144 Ofwat opposes ban on disconnections, Independent, p 26, 16 May 1998145 Paul Wilkinson, The Times, 18 May 1996, “Yorkshire Water's supply deficient and overstretched'” 146 Bakker (2003: 106)147 Oliver August, The Times, 31 May 1997, “Yorkshire Water spent Pounds 33m on tankering”148 “UK’s Ofwat says Yorkshire Water dividend policy “should not impair” business”, AFX News: 20 Jun 1996).149 M2 Presswire, 23 April 1997, “OFWAT: Requirement to pay compensation for drought related restrictions comes into effect”150 Shaoul (1998: 21-22)151 Owen Bowcott and Martin Wainwright, The Guardian (London), 20 May 1997, “Water companies given tough targets on leaks” 152 Ian Byatt, Ofwat, 22 May 1997, “MD 129 – Annual mandatory leakage targets”. http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/Content/mandatoryleakagetargets153 HOCSCE7 (2000)154 Green p.19155 http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsByTitle/water_regfacts_figs.doc/$FILE/water_regfacts_figs.doc156 Anthony Moreton, Financial Times (London, England), 11 September 1989, “Wales 7; Big Spending Lies Ahead”157 Anthony Moreton, Financial Times (London, England), 11 September 1989, “Wales 7; Big Spending Lies Ahead”158 Bob Newton, Press Association, 1 November 1990, “Treasury rules out early rates cut” 159 Anthony Moreton, Financial Times (London, England), 11 September 1989, “Wales 7; Big Spending Lies Ahead”160 PR Newswire Europe, 14 December 1990, “WELSH WATER PLC ("WELSH WATER")”161 PR Newswire Europe, 11 June 1992, “Welsh Water chairman calls for debate on charges and investment: 1.5% to come off planned charges”162 The Independent (London), 2 July 1991, “Ofwat pleads for price restraint”163 Ross Tieman, The Times, 31 July 1991, “Ofwat calls for strict payout limits” 164 Hawker (1997), cited in Thomas (2000)165 Ross Tieman, The Times, 15 December 1990, “Welsh Water pays Pounds 16.7m for power stake”166 Stewart Dalby, Financial Times (London, England), 16 September 1991, “Wales 5; Privatised utilities go to war”167 Neil Thapar, The Independent (London), 16 December 1992, “Welsh Water pulls plug on power link”168 Campaign, 11 October 1991, “Welsh Water hunts for agency”169 Stewart Dalby, Financial Times (London, England), 16 September 1991, “Wales 5; Privatised utilities go to war”170 Mary Fagan, The Independent (London), 6 July 1990, “Welsh Water moves into IT market”171 Tony Heath, The Guardian (London), 31 August 1990, “Welsh Water's cup runneth over”172 Tony Heath, The Guardian (London), 2 August 1991, “Wave of criticism for Welsh Water”173 Campaign, 11 October 1991, “Welsh Water hunts for agency”

31/01/2005 Page 40

www.watertime.org

Bakker, Karen (2000), “Privatizing Water, Producing Scarcity: The Yorkshire Drought of 1995”, Economic Geography 76 (1), 4-27

Barraqué, Bernard (ed.) 1995. Les politiques de l’eau en Europe. Paris: Éditions la Découverte.

Campaign for the renewal of sewerage systems (CROSS) (2000), Memorandum, Appendix 7 of House of Commons Select Committee on the Environment, Seventh Report, Water prices and the environment, 14 November,

Downing, Emma, and Richards, Patsy (1998), Water Industry Bill, House of Commons Library Research Paper 98/117, 10 December 1998. http://www.parliament.uk/commons/lib/research/rp98/rp98-117.pdf

Dwr Cymru (2003), Annual Report 2003. http://www.dwrcymru.com/English/Results/_pdf/AnnualReport2003.pdf

Environment Agency (2001), State of Water Resources, A Water Resources Strategy for England and Wales, March 2001. http://www.environment-agency.gov.uk/commondata/105385/national_report_english.pdf

Glas Cymru Cyfyngedig (2001), Annual General Meeting (2001) Corporate Governance Reference File http://www.dwrcymru.com/Glascymrusite/English/_pdf/CorpGov.pdf

Green, Colin (2000), “The lessons from the privatisation of the wastewater and water industry in England and Wales”. Paper presented to conference in Berlin on water privatisation, December 2000

Hall, David (2003), Response to the consultation document ‘Reform of Water and sewerage services in Northern Ireland’, March 2003. www.psiru.org

Hall, D. (2002), “Consumer representation in water in the UK”, Flux, September 2002

Hall, David and Lobina, Emanuele (2000), “Public Sector Alternatives To Water Supply And Sewerage Privatization: Case Studies”, International Journal of Water Resources Development 16 (1), pp 35-55

Hall, David (1998), “Restructuring and privatization in the public utilities”, in L. De Luca (Ed.) Labour and social dimensions of privatisation and restructuring (public utilities: water, gas and electricity), pp. 109-151 (Geneva, International Labour Office).

Hassan, John (1998), A history of water in modern England and Wales, Manchester: Manchester University Press

House of Commons Select Committee on the Environment Seventh Report 1999-2000: Water Prices and the Environment HC 597 14 November 2000 (HOCSCE7); www.parliament.the-stationery-office.co.uk/pa/cm199900/cmselect/cmenvaud/597/59702.htm

House of Commons (2003), Water Act 2003, http://www.legislation.hmso.gov.uk/acts/acts2003/20030037.htm

Jenkinson, T. & Mayer, C. (1994), “The Costs of Privatization in the UK and France”, in Bishop, M., Kay, J. & Mayer, C. (eds.) Privatization & Economic Performance, pp. 290-298 (New York, Oxford University Press).

174 Richard Phillips, The Independent (London), 29 September 1996, “Water and power may not mix; Welsh multi-utility Hyder could be hit hard by a windfall tax and a tougher regulatory regime” 175 The Regulatory News Service, 27 September 1996, “Hyder PLC - Contract Awarded to Consortium”176 Brian O'Connor, Daily Mail (London), 7 May 1994, “Is Electricity preparing a big dive into Water?”

31/01/2005 Page 41

www.watertime.org

Johnson, Clare, and Handmer, John (2002), “Water supply in England and Wales: whose responsibility is it when things go wrong?”, Water Policy 4, pp 345–366

Lea, William, and Nawaz, Mahmud (1994), Charging for water and the Periodic Review, House of Commons Library Research Paper 94/91, 18 July 1994

Ling, Tom (undated), “Some Lessons from the Historical Experience of Industrialised Countries in the Development of Modern Water Systems” - Paper by Tom Ling, Research Fellow, National Audit Office

Maloney, William A. and Richardson, Jeremy (1994), “Water Policy-Making in England and Wales: Policy Communities Under Pressure?”, Environmental Politics 3(4), pp. 111-137

National Audit Office (2000),

177 Investors Chronicle, 6 January 1995178 Thomas (2000:182, footnote 6)179 Thomas (2000:182, footnote 5)180 Thomas (2000: 183)181 Nick Pandya, The Guardian, 10 January 1998, “Company vitae: HYDER”182 Nicholas Bannister, The Guardian (London), 4 June 1999, “Swipecard fiasco costs Hyder dear”183 Martin Croft, The Scotsman, 10 June 1997, “Windfall tax 'may hit the public'”184 John Husband, The Mirror, 10 June 1997, “Splash and grab; Mirror Money: Hyder profits surge after job cuts”185 AFX News, 3 July 1997, “UK water sector remains attractive, share prices to recover: analysts”186 Peter John and Martin Brice, Financial Times (London, England), 5 July 1997, “Hyder in cash call fear” 187 David Wighton, Financial Times (London, England), 15 July 1997, “MPs set for last assault on windfall tax”188 FT Energy Newsletters - Global Water Report, 18 December 1997, “Hyder taps US for windfall tax”189 Business Wire, 6 October 1997, “4 U.K. Utilities Downgraded; Removed from S&PWatch”190 Nicholas Bannister, The Guardian (London), 4 June 1999, “Swipecard fiasco costs Hyder dear”191 The Regulatory News Service, 13 July 2000, “Hyder PLC - Preliminary Results-Part 1”192 Robert Cole, The Times (London), 19 November 1998, “On a Hyder to nothing” 193 Dwr Cymru (1999), “A summary of our Business Plan Submission to Ofwat”, April 1999. http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsbyTitle/tble1wsh.pdf/$File/tble1wsh.pdf194 Ofwat (1999), “Draft determinations: Future water and sewerage charges 2000-05”. http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsByTitle/ddets.pdf/$FILE/ddets.pdf195 Ofwat (1999: 9-10)196 Ofwat (1999: 42)197 Ofwat (1999: 42)198 Matthew Fletcher, Mail on Sunday, 19 December 1999, “Hyder's chief told to sell up”199 Matthew Fletcher, Mail on Sunday, 19 December 1999, “Hyder's chief told to sell up”200 The Regulatory News Service, 9 December 1999, “Hyder PLC - Interim Results - Part 1”201 The Regulatory News Service, 9 December 1999, “Hyder PLC - Interim Results - Part 1”202 Matthew Fletcher, Mail on Sunday, 19 December 1999, “Hyder's chief told to sell up”203 Matthew Fletcher, Mail on Sunday, 5 December 1999, “City turns the screw on Hyder; Utilities firm in survival battle” 204 Iain Mckelvie, Daily Mail (London), 18 August 2000, “Nomura washes its Hands of Hyder saga”205 Andrew Taylor, 18 August 2000, Financial Times (London, England), “UK: Nomura withdraws from Hyder battle”206 Christine Buckley, 19 April 2000, The Times (London), “Hyder payoffs to cost Pounds 1m”207 Jason Clark, Western Morning News (Plymouth), 28 June 2001, “How WPD took on Nomura - and won; The takeover of Hyder was 'like buying an alligator to make a pair of shoes'”208 Jason Clark, 28 June 2001, Western Morning News (Plymouth), “How WPD took on Nomura - and won” 209 Jason Clark, 28 June 2001, Western Morning News (Plymouth), “How WPD took on Nomura - and won” 210 Saeed Shah, 19 May 2000, The Independent (London), “WPD waives key condition to offer for Hyder” 211 European Commission (2000), “Case No COMP/M.1949 - WESTERN POWER DISTRIBUTION (WPD) /HYDER - REGULATION (EEC) No 4064/89 MERGER PROCEDURE”, 14 July 2000 http://europa.eu.int/comm/competition/mergers/cases/decisions/m1949_en.pdf212 Jason Clark, 28 June 2001, Western Morning News (Plymouth), “How WPD took on Nomura - and won” 213 Saeed Shah, The Independent (London), 15 August 2000, “Computer crash blamed for crucial delay in Hyder bid” 214 Andrew Taylor, 18 August 2000, Financial Times (London, England), “UK: Nomura withdraws from Hyder battle”215 Iain Mckelvie, Daily Mail (London), 18 August 2000, “Nomura washes its Hands of Hyder saga”

31/01/2005 Page 42

www.watertime.org

http://www.nao.org.uk/publications/nao_reports/9900971.pdf

National Consumer Council (1997), “Unclear Waters: Consumer prices and water company financial information”, PD 61/E2c/97, December 1997

New Policy Institute (2002), Playing with water: the future of Anglian Water and the issues for public policy, NPI, November

OFWAT (2004), Security of supply, leakage and the efficient use of water 2003-04 report. http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsByTitle/leakage_03-04.pdf/$FILE/leakage_03-04.pdf

216 Jason Clark, Western Morning News (Plymouth), 28 June 2001, “How WPD took on Nomura - and won; The takeover of Hyder was 'like buying an alligator to make a pair of shoes'”217 Thomas (2000: 186)218 Saeed Shah, 19 May 2000, The Independent (London), “WPD waives key condition to offer for Hyder” 219 Andrew Taylor, Financial Times (London, England), 21 October 2000, “Water deal off after legal ruling”220 Paul Garrett & Paul Newton, 19 January 2001, Utility Week, “Water Glas: a tale of two watchdogs” 221 1st March 2001, Rhodri Morgan, Welsh Assembly First Minister, http://www.news.bbc.co.uk/1/hi/wales, accessed 17th August 2003222 Thomas (2001: 101)223 Thomas (2001: 104)224 Thomas (2001: 103)225 The Independent, 4 November 2000, “Outlook: Welsh Water”.226 Thomas (2001: 105)227 Kelda, 7 June 2001, “Preliminary Announcement of audited results for the year ended 31 March 2001”. http://www.keldagroup.com/kel/media/groupreleases/gr2001/2001-06-07/228 Ofwat (1999: 50)229 Daily Mail, 27 November 1998, “Britain's Yorkshire Water Splashes Out Overseas in Bid to Beat Ofwat”230 Yorkshire Post, 2 June 1999, “Yorkshire dips toe in US water”231 Business Wire, 21 September 1999, “Aquarion Shareholders Approve Merger Agreement”232 Andrew Taylor, Financial Times (London, England), 17 April 2000, “Water companies struggle in wake of regulator's price cuts”233 Sally Patten, The Times (London), 12 April 2000, “Bond ousted in Kelda board battle” 234 Michael Harrison, 12 May 2000, The Independent, “Business: Byatt voices concern over water company plans to split assets from management”235 Kelda, 11 April 2000, “Kelda Group plc announces wide-ranging strategic review”http://www.keldagroup.com/kel/media/groupreleases/gr2000/2000-04-11/236 Matthew Jones, Financial Times (London, England), 12 April 2000, “Yorkshire water group review as CEO quits”237 Kelda, 14 June 2000, “Kelda Group strategy review conclusions”. http://www.keldagroup.com/kel/media/groupreleases/gr2000/2000-06-14/2000-06-14.pdf238 Ofwat (2000), “The proposed restructuring of the Kelda Group: A consultation paper by the Director General of Water Services”. http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsByTitle/keldarestructconspaper.pdf/$FILE/keldarestructconspaper.pdf239 Ofwat, 25 July 2000, “The Proposed Restructuring of the Kelda Group: A preliminary assessment by the Director General of Water Services”. www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsByTitle/keldapaperdraft5.pdf/$FILE/keldapaperdraft5.pdf240 Carl Mortished, The Times (London), 15 June 2000, “City cheers mutuality proposal by Kelda” 241 Financial Times, 15 June 2000242 Shaoul (2000: 3)243 Brian O'Connor, Daily Mail (London), 15 June 2000, “Kelda springs GBP 2.4bn plan for water 'mutual'” 244 Ofgem, July 2000, “New Ownership Structures in the Water Industry: a response to the Director General of Water Services’ consultation paper”. http://www.ofgem.gov.uk/temp/ofgem/ cache/cmsattach/167_20july00.pdf245 Andrew Turpin, The Scotsman, 15 June 2000, “Kelda could raise 2.4bn pounds in Yorkshire Water sell-off”246 National Consumer Council, July 2000, “The Proposed Restructuring of the Kelda Group – response by the National Consumer Council”, pp3-4247 WaterWatch, July 2000, “The proposed restructuring of the Kelda Group – WaterWatch Interim Response”248 WaterWatch, 14 June 2000, “Yorkshire Water Trading Assets like Pokemon Cards”

31/01/2005 Page 43

www.watertime.org

OFWAT (2004b), “Future Charges for Water and Sewerage Services 2005-10 – Final Determinations”, Office of Water Services, December 2004http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsByTitle/pr04FD_all.pdf/$FILE/pr04FD_all.pdf

OFWAT (2003), Financial performance and expenditure of water companies in England and Wales, 2003-2004 report, August

OFWAT (2002), “Tariff structure and charges: 2002-2003 report”, May 2002 http://www.ofwat.gov.uk/pdffiles/tariffs_report02.pdf

OFWAT (2001), The proposed acquisition of Dwr Cymru Cyfyngedig by Glas Cymru Cyfyngedig: a position paper by Ofwat, January

OFWAT (2000), New ownership structures in the water industry: a consultation paper by the Directors General of OFWAT and OFGEM, 6 June 2000. http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsByTitle/mutuals.pdf/$FILE/mutuals.pdf

OFWAT (1999), “Final Determinations: Future water and sewerage charges 2000-05”. 25 November 1999 http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsbyTitle/finaldets99part1.pdf/$File/finaldets99part1.pdf

OFFER / OFWAT, (1995), “The proposed acquisition of Swalec plc by Welsh Water plc: a joint consultation paper by the Directors General of OFFER and OFWAT”, December 1995

OFWAT (1994), “Future Charges for Water and Sewerage Services – the outcome of the Periodic Review”, Office of Water Services, July 1994

Penrhyn Jones, G (1958), “Cholera in Wales”, National Library of Wales Journal, Vol X/3, Summer 1958

249 Yorkshire Post 15 June 2000250 WaterWatch, 5 July 2000, “Call for Longer Consultation on Yorkshire Water Mutual Plans”251 Matthew Jones and Andrew Taylor, Financial Times (London, England), 22 July 2000, “Yorkshire Water sale likely to be delayed by months” 252 Ofwat, 25 July 2000, “The Proposed Restructuring of the Kelda Group: A preliminary assessment by the Director General of Water Services”. www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsByTitle/keldapaperdraft5.pdf/$FILE/keldapaperdraft5.pdf253 Kelda, 25 July 2000, “Kelda Group response to Ofwat statement”. http://www.keldagroup.com/kel/media/groupreleases/gr2000/2000-07-25/254 Ian Byatt, 24 July 2000, letter to David Perry. http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/Content/davidperryletter255 Michael Harrison, The Independent (London), 1 March 2002, “Kelda is forced to abandon plan to refinance Yorkshire Water assets” 256 Karma Ockenden, Utility Week, 22 October 2004, “Free meters force up bills and should go” 257 WaterVoice (2004), Annual Report 2003-4, p70258 Ofwat (2004: 75)259 Ofwat (2004: 75)260 Ofwat (2004: 29) 261 WaterVoice (2004), Annual Report 2003-4, p70262 Regional Gross Value Added, Residence based GVA, £ per head. http://www.statswales.wales.gov.uk263 http://www.met-office.gov.uk/climate/uk/averages/19611990/areal/england_n.html264 WaterVoice (2004), Annual Report 2003-4, p70265 Ofwat (2004: 75)266 Ofwat (2004: 75)267 Ofwat (2004: 29) 268 WaterVoice (2004), Annual Report 2003-4, p70

31/01/2005 Page 44

www.watertime.org

Saal, David S., and Parker, David (2001), “Productivity and Price Performance in the Privatized Water and Sewerage Companies of England and Wales”, Journal of Regulatory Economics 20(1), pp 61-90

Sawkins, John W. (1995), “Yardstick competition in the English and Welsh water industry: Fiction or reality?”, Utilities Policy 5(1), pp 27-36

Schönbäck, Wilfried; Oppolzer, Gerlinde; Kraemer, R. Andreas; Hansen, Wenke; and Herbke, Nadine (eds, 2003), Internationaler Vergleich der Siedlungswasserwirtschaft, June 2003

Sellers, David (1997), Hidden beneath our feet: the story of sewerage in Leeds, Leeds City Council, Department of Highways and Transportationhttp://www.dsellers.demon.co.uk/sewers/hidden.pdf

Shaoul, Jean, (2000), “Tapping into mutuals”, Public Finance, September 8-14 2000, pp. 16-19

Shaoul, Jean, (1998), “Water Clean Up and Transparency: The Accountability of the Regulatory Process in the Water Industry”, A Public Interest Report, Dept of Accounting and Finance, Manchester University

Shaoul, Jean (1997), “The Power of Accounting: Reflecting on Water Privatisation”, Accounting, Auditing and Accountability Journal, 10 (3), pp 382-405.

Smith, John and Hannan, Duncan (2003), “Structure of the water industry in England: does it remain fit for purpose?”, Department for Environment, Food and Rural Affairs (DEFRA) and the Office of Water Services (OFWAT). http://www.defra.gov.uk/environment/water/industry/structure-report/finalreport.pdf

Szreter, S. (1992), “Mortality and public health: 1815-1915”, Recent Findings in Economic and Social History, 14, Spring, www.ehs.org.uk

Thomas, Dennis (2001), “Welsh Water: role model or special case?”, Utilities Policy, 10: 99-114

Thomas, Dennis (2000), “Hyder: the rise and fall of a multi-utility”, Utilities Policy, 9: 181-192

Williams, Glynne (2004), “The Welsh Water experiment and the true cost of outsourcing”, Cardiff School of Social Sciences, January 2004

WRc (2000), Study on Investment and Employment related to EU Policy on Air, Water and Waste, September 2000. European Commission, Directorate General – Environment. http://europa.eu.int/comm/environment/enveco/industry_employment/investment_and_employment.htm

Notes

31/01/2005 Page 45