Water resources and the April deadline

The Government's insistence that water companies look to a 25 year horizon in resource planning takes the process into a time that may see the early stages of climate change. RAJ Arthur explains why the age of demand management is here.

The Government's insistence that water companies look to a 25 year horizon in resource planning takes the process into a time that may see the early stages of climate change. The responses by Ofwat and the Environment Agency (EA) to draft water company resource plans last October highlighted uncertainty also on customer demand, metering, supply security in environmental context and economic levels of leakage. Both regulators discouraged new resource development. The age of demand management is here. Both took a strong line on inessential water use and favoured strong tariff discrimination.

Hopeful new resource plans betrayed a wish to keep some room for manoeuvre. Both regulatory bodies commented on the apparent wish of companies to retain a facility for operating without the need for hosepipe bans and other unpopular curbs. The EA, and in their January guidance the Ministers, insisted that hosepipe bans must be retained as a powerful remedy, able to avert the drought order stage.

Companies were leaning to meet customer demand and the regulators were holding them back ­ an interesting reflection on the plight of a privatised utility. In this business the customer is far from being always right. A supplier too responsive to demand invites caning.

The draft plans gave a preliminary answer to the question Œdo we have enough water? According to the water companies the answer is no. About a third could be short by 2005, barring solutions and two thirds in the long run. They had been asked to say how they proposed to deal with deficits. Their answers covered the whole range of possible measures.

The Ofwat director summed the proposed capital expenditure of the companies to £2.2 billion, then challenged the estimates. Finally he produced his own total of around £1 billion. The demolition job certainly altered the landscape.

Within the original £2.2 billion, capital expenditure proposed by companies to maintain the supply-demand balance amounted to £1.1 billion, but Ofwat reduced it to £0.5 billion. Companies had proposed an additional £0.5 billion to enhance security and leave more water in the environment, but Ofwat reduced it to £0.2 billion.

The Ministerial document picked up the point on Œthe claimed need of some companies for additional resources to increase their security of supply and to leave more water in the environment¹ and noted the apparent wish of companies to reduce the risks of restrictions on use, such as hosepipe bans and emergency abstractions from rivers and streams, in seeking increases in the margin of supply over demand. Significantly, it proposed that if the increased margin of supply over demand was needed solely to minimise emergency abstractions, the measures should be incorporated in agreed water management plans, and should use the entire demand management package including hosepipe bans. The bottom line of the guidance was determined to avoid another 1995, putting the onus on companies not to be caught out again.

The announcement in March of the Œlargest ever programme of water company investment for environmental improvement at a cost of £8 billion delighted the EA, which had specified the needs. Government policy leans to protect the environment. It also backs Ofwat in the drive to cut costs. How much can be crammed into the suitcase of measures before these aims become incompatible? Noticeable, Ofwat remains upbeat on price cuts and Mr Meacher said the new programme is consistent with a ten per cent average cut.

Uncertainty surrounded company predictions of metering penetration because the Government¹s final proposals on water charging were not announced until November. Water companies would not be able to insist on metering for existing households. Companies were required to review their predictions accordingly. These had ranged from four per cent to over 90 per cent penetration. While metering is favoured by policy, over reliance on it was contrasted by the regulators with a lack of attention to water efficiency measures, unreflected in resource forecasts, which might indicate that in some companies efficiency planning had not gone far.

Companies were taken to task on leakage. The EA pointed out that any slackness in calculating unmeasured supply (on which forecasts varied widely) would affect leakage estimates. Moreover some companies claim, with reference to the economic level of leakage, that they could even allow leakage to rise. This has been firmly stamped on, but it is exactly on economic level of leakage that the EA finds companies most secretive. It seems also that some companies with high leakage rates are spending at a snail's pace on mains replacement. There is more than a suspicion of something odd going on.

In its October document the EA said most of the demand increase predicted by companies was customer water consumption and added "in other words it is predicted that we will nearly all use more water in our homes in the next 25 years." Of course the regulators challenge predictions. The report suggests a future in which the public will be forced to use much less water. Considering the level of saving now expected from demand management the impact is unlikely to be small.

The idea of bulk transfers from areas with bountiful supply is much favoured by policy, but not, it seems by many companies. The EA suggests there may be a fear of dependency in times of scarcity, a fear it considers largely unfounded, but in any normal business dependence on a single supplier amounts to vulnerability. The companies compete in a simulated market. When it comes to ownership of a resource competition takes on a sharper edge. The formula for privatised public services ­ the rail industry has parallel problems ­ needs to evolve to remove system anomalies that obstruct rational cooperation. The advice to water rich companies is to use demand management and water efficiency just like the others, to free up supply for neighbouring dry areas. In business terms that might be profitable ­ or self sacrificing ­ depending on circumstance. It meets the national need, but every business has its agenda. At present there is no necessary convergence of interest.

The EA, which has final responsibility for the resource, must make firm decisions on how much can be taken out of the environment and these can only reflect the state of knowledge at the time. The BGS, in the January issue of its magazine Earthwise, puts a question-mark over British groundwater. For all its importance in resource planning, still not enough is known about it. Behind Mr Meacher¹s insistence on security of supply is an awareness that water shortage arouses the public to the sort of anger no Government can afford. The problem for politicians is that all this demand management really puts the onus on the public to change its ways. Everyone might agree that wasting water is wrong, but there is not much agreement on where the line should be drawn. By the standards of the arid zone, all Europeans are wasteful.

There is the sensitive issue of hygiene, acknowledged in the refusal to make metering compulsory. Lack of hygiene reflect swater availability. Meanwhile the squeeze is only on garden watering. Some day in the south and the east the choice may between gardens and meadows.

If there is another 1995, companies are likely to say: "We had these plans to secure supply, but the Government and its regulators clipped our wings." The question is who decided how much is enough and on what grounds? The uncertainties can not be taken right out, least of all with climate change predicted. In the search for cost-effective measures a finer line is drawn. The Government, like everyone else, calls for price cuts while still demanding security. The companies' idea on how to achieve that are being partially disallowed so it might be argued that the regulatory bodies, pressed by the Government to be involved in resource planning, have taken a certain direction out of the companies' hands.

Policy is herding the industry down a pathway of demand management and efficient water use. Beyond lie bulk transfers, and only, if proved unavoidable, new reservoir development. Thames Water and Severn Trent Water at least seem confident of proving long-term need for the Abingdon project and a scheme in the Midlands respectively. Other schemes up and down the country may still survive. All that stays on the agenda must prove itself up to the hilt.

If past events have made the price issue sensitive, the public also have their ideas on sufficiency. The conservationist bodies hold strong views on how much water should be left in the environment, a factor locally measurable in the state of habitats. It is in the grass roots negotiations with water companies to fix those levels that the judgement of the EA will be most severely tested.

Water efficiency makes every kind of sense, but the enforcers can not look for popularity, especially after the publicity given to leakage. To be allowed to increase water supply looked like the answer to the companies problems, but it has been severely discouraged. That is the main effect of the process now nearing completion.


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