New round in battle over future water prices

The four-cornered contest over the levels to which water bills will be allowed to rise advanced a step further in June when water companies made their opening bids for future price limits. In some cases these will not pay for environmental standards dictated by legislation - and neither, despite claims by the industry's price regulator, will they satisfy customers' demands for higher water quality.

The water companies have been consulting their customers about their willingness to pay for higher levels of service in the run-up to the fixing of water price limits into the next century by the Office of Water Services (OFWAT). Some have employed questionable methodologies in their customer consultation exercises in an apparent bid to get the answers they want (ENDS Report 220, pp 17-19 ).

OFWAT has now received the companies' opening bids for "K", the level above inflation to which their prices will be allowed to rise annually over the next few years. As far as the ten plc's are concerned, it is understood that these vary from a 2% bid by Welsh Water to an 11.5% bid by North West Water.

The bids were due to be discussed at a meeting early in July between OFWAT, the Water Services Association, the National Rivers Authority (NRA) and the Department of the Environment. The NRA was expected to tell the meeting that Welsh Water's bid would not pay for its statutory obligations, notably the need to improve its sewage discharges under the 1991 EC Directive on urban wastewater treatment.

Welsh Water's explanation is understood to be that almost 20% of its customers are on some form of income support and could not tolerate steeper increases in their water bills. It has received some support from Ian Byatt, OFWAT's Director General, who said on 22 June that "customers want prices to rise no faster than the rate of inflation and would be unhappy with increases which exceed the likely rate of growth of average household income - which would be in the region of 2%."

However, Mr Byatt has come in for criticism from the NRA for portraying many of the environmental investments behind rising water bills as "new" obligations, when in fact these are dictated by legislation dating back to the 1980s or stem from Government promises to improve river quality which have an even lengthier lineage. The NRA is sympathetic to the plight of poorer customers facing difficulties in paying higher water bills, but says this is a matter for the Government rather than something which can be addressed by the NRA not implementing its statutory duties.

Mr Byatt has also been portraying customers' views as being wholly concerned with rising water bills. However, OFWAT has ample evidence that they are also concerned about the environment. A survey of customer opinion conducted on its behalf last year showed that concern about sewage discharges to rivers and coastal waters ranked second in importance only behind the quality of drinking water.

Unrepentant, Mr Byatt said in a speech on 17 June that "rises are more uncomfortable for customers when starting from a high base. The South West is a prime example. The recent increases in water bills have unleashed a political storm."

However, the latest results of a consultation exercise by South West Water by no means give unqualified support to those contentions. A MORI poll among 2,523 people in the region showed that most ranked bathing beaches, sewage overflow prevention and sewage treatment as the three most important future improvements in water services (see figure ). A large majority of customers also believed that current improvements in sewage treatment and other services were very or fairly worthwhile.

Most customers favoured the company's least-cost scenario for bills and services to 2000, which was expected to increase annual bills to £400 at 1992 prices from their present level of £266. However, MORI found a willingness to pay extra for better services, particularly among the younger and wealthier sectors of the population. Younger people and those with children were also most likely to regard improvements in sewage treatment and tap water quality as important.

The debate about future water prices is not yet fully informed. Auditable estimates of the costs faced by water companies in making specific improvements to their service standards are being prepared. But sources at the NRA say that OFWAT is seeking to rush ahead with detailed discussions with the companies before these figures are ready.

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