'We are a public health business'
Wessex Water's chief executive, Colin Skellet, is the company's longest-serving employee. Natasha Wiseman visited the company's headquarters in Bath to find out what its various changes in ownership and management have taught him, and where he thinks the water industry should be heading
Having stuck with Wessex through the biggest change of all, from public to private ownership in 1989, and the bruising four years under the now disgraced US energy firm Enron (1998-2002), Skellet expresses content with the company's latest owners, the Malaysian infrastructure firm YTL.
He is keen to stress the difference in corporate culture. "They're essentially a family business. They're born-again Christians, so there's a very different ethos in the business.
"They don't interfere with the business. They use their ownership of Wessex to help them develop water interests elsewhere in the world. But they've been studious about not diverting Wessex people from the Wessex business. The main thing is that they understand long-term infrastructure, so they understand long-term investment and they're a much better match," he says.
Balance in business
Skellet sees successful business management as equity between its key stakeholders: customers, the environment, the employees and the shareholder.
"It's really important to get these things in balance," he enthuses. "The reason things go wrong is that one of them gets out of balance. Unless you've got your customers, unless you're doing what you need to do to protect and enhance the environment, unless you do that through employees who understand what they're supposed to do, you're going to have unhappy shareholders.
"You can distort the shareholder bit for a short period, the Enron approach. But, unless you get things in balance in this sort of business, it just doesn't work," he says.
Speaking at the company's environmentally celebrated, open-plan headquarters in Bath on October 17, he is emphatic about the company's role in society. "We are a public health business. We are not canning beans. We are absolutely fundamental to the communities we serve. And, in that case, you need a different sort of relationship with the people," he says.
Wessex's relationship with its most unreliable customers has been improved by a social tariff for those on low incomes. The aim of the Assist tariff is to get people who are failing to pay their bills back into the habit of paying, all be it at a reduced rate.
For most people, " says Skellet, "the bills are about 2-2.5% of household income, but there are people who have real problems in paying. Barbara Young said the pace of environmental improvement shouldn't be dictated by the ability of the poorest to pay. The answer is to use your imagination on tariffs to enable the people who've got difficulty to pay their portion, but still plough on with doing the things that you have to do."
Assist started on April 1 with support from the Consumer Council for Water and the Citizens Advice Bureau, which helped in identifying people who fit the tariff's requirements.
Skellet explains: "We found a group of people who had real difficulty paying. They were stigmatised because they couldn't afford to pay. We were spending money sending out bills, chasing debt then writing it off. You have to fit into certain categories. But, if you do, you pay a proportion of what you otherwise would pay.
"So, for the rest of the customer base, there's an income coming in that otherwise wouldn't be coming in. And we've got people who are getting back in the habit of paying water bills."
For Skellet, metering and tariffs are complementary means of reducing demand and achieving affordability. He is excited about the options opened up by smart metering, and Wessex is doing research in this.
"We're looking for permission to trial next year a range of tariffs," he says. "We have to manage distribution systems and deal with the one half hour in the year when everyone comes home and switches their sprinklers on, and encourage them to do it at a different time. We can use these tariffs to deal with the affordability issue for those who have difficulty paying."
Skellet drew on international experiences of metering. "If you look at most of the European countries, there are variations on tariffs around the times of the year and peak demand. In somewhere like Denver, they've been trialling some little out-readers that you have alongside the sink. They don't tell you how much water you're using, they tell you how much your bill's going to be.
"We haven't even got to the stage where we can read the meters remotely. We haven't done it because the costs have been too high. But I think the pressure that's coming from having to deal with climate change, to manage demand, to manage leakage... are making it far more cost effective to use smart metering and smart tariffs... the costs are coming down as well."
Respect for regulation
Skellet's experience with Enron has given him respect for the effectiveness of regulation in the UK water industry. "What it demonstrated is that the regulatory system works, the regulatory system and having an independent board," he says. "There were a lot of things that Enron would have liked to have done with Wessex that they just couldn't do."
But he believes that Ofwat needs to reassess its priorities in view of the rapidly shifting environmental agenda that is driving the demand for bigger and better
Speaking of climate change, Skellet says: "The two big implications for us are the obvious ones, the industry is going to have to create more storage and also to manage demand. An even bigger challenge is on the sewerage network because most of the UK has a combined sewerage network. We have to be designing against what we perceive will be there in 60 years' time because the sewers will be there in 60 years' time."
"At the last price review," he recalls, "we went to Ofwat and said we're going to put these sewers in and we're going to upsize them to deal with what the conditions are likely to be in 60 years' time. I added about 10% to costs, and that was turned down at the time because climate change wasn't a mandatory thing.
"Things have moved on from there and, at the very least, we should be saying [infrastructure] should be future-proofed against the likely projections on climate change. And I think over time we should upsize and upgrade the existing sewer network because it is not going to cope with the sort of weather conditions that we are starting to see and will see even more of.
"I think if you look across utilities generally, incentive-based regulation has tended to focus on price. With water, on one side is a series of quality regulators who want to... achieve legally required European standards, on the other side, you've got Ofwat who are focusing on price.
"I think what customers want is stability and reliability. I think it is something that the regulator has yet to get their head round.
"Personally, I would start from: 'How do we ensure customers get what they want over the long term?' In other words, that they've got guaranteed supplies or confidence that they're not going to get a flood every time we get an extreme rainfall event.
"We got ourselves locked into this idea that every five years we've got to have this massive confrontation about how, now we've got all these improvements in standards, we've got to drive the prices down. All the research we do with our customers shows that people aren't really concerned about the absolute price of water, what they're concerned with are price changes.
"There's an opportunity in the next review to start to tackle some of the longer-term issues of the industry. Given that there is an expectation that, because the capital has been cut somewhat, and the efficiency improvements that the industry's made, there's an opportunity to either reduce or moderate prices or to do more.
"Wessex's view is very clear that customers aren't crying out for price cuts, customers want stability. I think we've got to get our heads around the fact that these are long-term businesses with long-term investment profiles, and customers want price stability, and work within that framework."
Skellet sees a whole-body approach to regulation and the way it is delivered as a necessity if the industry is to reduce its large carbon footprint. "We are big energy users," he says, "and in simple terms we can mitigate our carbon footprint by minimising the energy we use, and some of that requires a realistic approach to some of the standards. Take disinfection. We are the only country in Europe that requires UV disinfection on the coastal discharges; it's a legacy of the way the UK has chosen to implement regulation.
"A lot of the standards that are being required are putting up energy usage. And we should be looking at things in a much more holistic way, looking at carbon footprint consequences as new standards are introduced, that's one part of it.
"It's a loop that we can partially close on our own," says Skellet, mentioning that Wessex is generating 20% of the energy it uses from biogas and is installing windmills at its Bristol plant. "But, because of the nature of regulation, it requires much more joined up thinking between government, regulators and the industry. I think generally in the UK there is a whole lack of leadership around these whole areas of climate change. We pay lip service to it and we set targets but you don't sense that there is a clear coherent leadership."
Communication is key
Communication is key to Skellet's vision of a successful company. "I've learned that you can never over-communicate, however good you think you are," he says. In this spirit, Wessex has just relaunched its customer magazine in the style of a lifestyle magazine and has been greeted with an overwhelming response to its competition to win a rain-butt.
It has also introduced a Dest intranet system to inform staff with televisual updates on the company widescreens or on their computers. The next stage is to relay Dest to the PDAs of workers in the field.
"It's relatively easy to communicate with the 500 folk in this building," says Skellet. "The difficult thing is you've got 2,000 people out there, spread across this region. A lot of them are now working from home, so communicating with them is much more difficult."
Back on his favourite theme, he concludes: "We still have lots of issues in the business, because every business does, but they always come down to trying to improve the way you communicate with people and taking people with you."