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.


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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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