Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 20 -39)



  20. I see the problem. I do not think there is necessarily a really perfect solution to that.
  (Mr Fletcher) I agree with you.

Mr Grieve

  21. Could we turn to what water consumers want? Of course, like most things they may wish for incompatible or contradictory things; doubtless most people want low prices, at the same time if they are asked in broad terms whether they want water conservation they will make that point as well. It is clearly for you to an extent to try to reconcile those different pressures. May I just turn to this? Last year when we looked at the matter we felt that there was an array of customer surveys all being done from a slightly tendentious point of view and not really very constructive. We recommended a comprehensive and independent survey done by the DETR to look at public expectation and particularly at the question of environmental improvements and longer term policies. We said that the structure and content of that research should be agreed within the quadripartite group. What has actually happened in relation to that? Have you been consulting? If so, with whom and with what result?
  (Mr Fletcher) May I first go back to the Committee's report? I went to the minutes of evidence taken and I can see how perhaps a slight misconception arose from them. Ian Byatt was not attempting to mislead at all, but he may have underplayed the significant survey which Ofwat did undertake—1,200 so a representative sample—and perhaps overplayed the very tiny sample of customers who were particularly vulnerable. There was an Ofwat general survey in advance of the Periodic Review. I can well understand why the Committee, if it took the view that had not happened, said DETR ought to do it if Ofwat were not. Ofwat will and Ofwat sees it as very important that we should conduct proper surveys and what is more that we should do it as the Committee is asking, that we do consult the stakeholders before we actually launch on the various questions. That is not to rule out surveys by the water companies themselves of their customers. It is very important that they should know what their customers think. We do see it as our job to conduct proper surveys and as an earnest of that we intend to conduct a large survey this year into customer service issues, not specifically this time looking forward to the next Periodic Review, which is still a way ahead, but on things like customer satisfaction and reasons for dissatisfaction, the relative importance of different issues, the very point you are making, does Ofwat really understand how customers balance things, and we will share that with DETR and all the other stakeholders.

  22. As well as sharing it with them are you consulting with them prior to doing it or is this just your own activity?
  (Mr Fletcher) No, it is something we are consulting on. It appears first of all in our forward programme as something we are going to do and that in itself has been subject to consultation. May I bring in Mike Saunders, whose job it will be to ensure the consultation happens?
  (Mr Saunders) The answer is yes, we will consult with the companies before we carry out the survey, so that we have everyone else's comments on the objectives and how we are going to set about it. We will consult with the Agency, outside consumer groups and the Department.

  23. Is that likely to lead to the consequence that they may be willing to rely on single surveys of this type in future rather than doing their own thing or is it just a question of asking them a few questions before you do your own thing?
  (Mr Fletcher) We cannot stop other interested parties deciding they want to do something which is specific to their interests. It is noticeable that what you have described as the plethora of surveys last time had some pretty common messages coming through, but also there were some messages which tended to be specific to whoever had commissioned that particular survey. We cannot dragoon everything into one. We can look to deliver value for the money of the water customers, who are paying for it, and to ensure that we embrace where it makes any sort of sense, the sorts of thing that other stakeholders and colleagues want us to ask. We shall aim to do so.

  24. May I move on to the question about the Environment Council and your role and involvement with that and employing best practice within their methodology? What progress has been made on that? You previously indicated that you were interested in signing up and joining with the other stakeholders to pursue that line. Where are we now?
  (Mr Fletcher) We have joined the Environment Council. We are still in the early days of actually coming to grips with their approach to stakeholder confidence and dialogue. I have been through their documentation. The reservation I have is that a process of setting a review going, involving a number of different clear interested parties, is not in itself a negotiation leading to a compromise conclusion. This is always going to be something where people are unhappy with the conclusion for one reason or another. So it is very important that I understand what the various positions of everybody else involved are and I understand those positions clearly. I cannot hope to come up with a compromise which satisfies all.

Mr Thomas

  25. We are hoping later on to explore some of the restructuring things which lay behind the Glas Cymru proposals but may I ask you now about the consultation at that time? The consultation which took place on the Glas Cymru proposals, for example, consisted of the publication of the proposals, they were available on the website, two public meetings in Wales certainly—I do not know whether there were any in the part of England which is covered by Dwr Cymru—one organised by the company itself and one organised by the customer service committee, at which attendance, being public meetings, was not particularly high. Certainly the stakeholders in terms of the Agency and the National Assembly of Wales seem to have had a good say in the matter. Are you convinced that the customers of Dwr Cymru/Welsh Water really know now or even knew then during the consultation period, what was being proposed for the company which would deliver various services? Is there anything in your involvement now with the Environment Council which would make you really look at these sorts of consultations in the future? May I say that from my point of view, in the way in which I represented my constituents and dealt with it, I felt that the process was a little opaque and certainly too attenuated for the purposes set out? I know the cities do things very quickly but when the public are involved they need much more time to understand what exactly is being proposed for them.
  (Mr Fletcher) In terms of length of time for consultation, the period we had was eight weeks which admittedly included Christmas, so I recognise that was less than perfect. It is a question of a balance here. It has to be time enough properly to consult customers; that is an absolute. But, if the length of time for consultation jeopardises the whole proposition then that is hardly fair to those who are making the proposition, who are risking funds and their own stakeholders and money in making the proposal. It was a conclusion that this was an appropriate length of time. That was really the yardstick I took throughout. Is this an appropriate investment by the company, Glas Cymru, by others including the customer service committee under the Ofwat banner and by Ofwat itself in ensuring—just your point—that customers were given as full an opportunity as possible to be made aware of what was going on? I could have asked for something more. I could at one extreme have said that there should be a ballot of every customer of Dwr Cymru. I thought that would be inappropriate here because, unlike a mutual, the customers are not being asked actually to own the company. What was done over and beyond the list you have already given, was for the company itself to seek to maximise the coverage, not only with the obvious, the National Assembly itself for example, but writing to every opinion former they could think of—I very much hope they wrote to you—not just MPs, Members of the Assembly and a whole host of others and conducting in-depth surveys as well. I would attach quite a lot of weight to those in-depth surveys. These were trying to get to the genuine customer through small but representative samples. The rather healthy response which came through from those samples was: on balance tend to be more in favour than against, but the first thing we as a customer want, is a safe, secure supply of drinking water at the right pressure, at bills we can afford. That seems to me to be a very appropriate customer reaction.

  26. Would you agree with the conclusion that Ofwat has certainly moved a great deal in the way it consults with stakeholders, groups, agencies, the emerging devolved administrations and so forth? That there may still be more work to be done in terms of consulting with the individual customer for them to understand how what is being proposed may affect the cleanliness of their water, the pressure of their water or the reliability of supply of their water.
  (Mr Fletcher) With any sort of proposal for restructuring that is the $64,000 question. Frankly if drinking water were put at risk, if companies' duty as a sewerage undertaker were jeopardised by this reorganisation, it would never get past square one. I and my colleagues, Michael Rouse, the Chief Drinking Water Inspector, Baroness Young and Sir John Harman for the Environment Agency, have to be convinced that there is more than a reasonable prospect that this is going to work properly and that all the requirements are going to be delivered. That is why it is quite difficult to excite the customer because protecting the customer is an absolutely non-negotiable starting point. Are we becoming more consultative? I hope so, but I do not see this as in any way a step change from my predecessor. I am simply building on the lines my predecessor had already set.

Mr Gerrard

  27. You talked earlier once or twice about asset maintenance and capital spend and you said you did not think it was perhaps entirely fair of the Committee to suggest that Ofwat had neglected the question of asset maintenance. Ofwat's response to our report accepted that "insufficient attention has been paid to developing a complete and intellectually robust framework and that Ofwat has a role to play in its development". Have you changed your mind on that?
  (Mr Fletcher) No. Intellectual neglect sounds as though we have been giving no attention to the issue at all, so perhaps I am just being too thin-skinned on behalf of my predecessor.

  28. You thought we were being a bit too cruel.
  (Mr Fletcher) I fully accept, as my colleagues do, and it is particularly Dr Emery's area of expertise, that Ofwat, with the industry, needs to be devoting a great deal of work to this topic and we are looking to do so. We are working first of all with the Drinking Water Inspectorate on a study. We are looking to take that further forward with the Environment Agency and we are looking to participate fully in the industry's own work on this, most obviously through a study which UKWIR, the Water Institute Research Association, is undertaking.

  29. You mentioned that in your evidence.
  (Mr Fletcher) I said I hoped for something by the end of February, but I have not received it yet I am afraid; it has slipped a bit.

  30. One of the other things you said in response to our report was that the change in the ability of underground assets to deliver was likely to be gradual. Is the evidence really there to back that statement up? When we were shown the age profile of mains we could see very large cohorts in certain periods; it is not an even age profile at all. Can we really say that it is going to be gradual? Do we know that at the moment?
  (Mr Fletcher) I did pick up the Committee's point that there had been step change periods of past investments, rather like baby boomers after the war, of whom I am one, who are getting old together. The evidence available to us does not suggest, given the overall huge scale of the water infrastructure, that there have actually been such significant periods of investment in the past such as to cause us to believe that there will be significant periods which, simply on age grounds, would lead to failures in the future. In fact there is not a very good correlation between age and failure at all. For example, some of the Victorian sewers are doing very well indeed; some sewers which were only put in 20 years ago are not doing nearly as well, either because they were not as well installed or because the ground conditions generally work against serviceability of those assets.

  31. You say you are developing indicators of serviceability. Can you give us any indication where you are on that, what those indicators might look like, what sort of indicators they might be?
  (Mr Fletcher) We work currently with 11 serviceability indicators, things like for the underground water infrastructure low pressure problems, interruptions to supply, then the above ground stuff, the coliforms, the pollution, enforcement issues, quality compliance issues, then sewerage, overloaded sewers, pollution incidents, sewer collapses and how far sewage treatment works comply with the requirements. All of those indicators are about outputs and outcomes and that is where we really ought to be concentrating. Not to say we are backing over the cliff, but to say and to accept that we need to introduce more of a forward looking element as we develop the sophistication of our approach, as the industry develops its approach working with us. Those are the main serviceability indicators we use and they are set out in notes which Ofwat produced now virtually a year ago.

  32. I am sure you remember that one of the things we said in the report was that looking at what happened last year is not necessarily a very good predictor of what is going to happen next year.
  (Mr Fletcher) It is back to the over the cliff worry.

  33. From that list you read out how many really are forward looking? Should we be trying to develop better forward looking indicators?
  (Mr Fletcher) May I give a few indicators which lead us to believe that overall the fitness for purpose, the serviceability of the infrastructure, is not getting worse and may well be getting better? The reduction in leakage, is a real achievement over the last five years—admittedly with a good push both to the regulator and to the industry from Government. Thirty per cent down to 21 per cent is a big achievement; not yet complete, still more to do. A reduction in the number of properties at risk of receiving low pressure: 350,000 ten years ago and 30,000 now. Cutting by two thirds the number of the most serious pollution-related incidents since 1995. Those are really indicators that the industry is making progress, closely watched by me and by the other regulators. No complacency about it. Accept that we need to go on working about the level of investment required in the capital infrastructure. It will, I am sure, be a key controversial issue for the next Periodic Review and that is why we are doing the work now, because this is long-term work which will only yield results over time.

  34. How soon do you think it will be before it is possible really to see trends in those indicators?
  (Mr Fletcher) We are seeing the trends now.
  (Dr Emery) Philip Fletcher has already gone through the kind of indicators we are using. With the Drinking Water Inspectorate we are looking at the quality side, particularly drinking water quality, to get some more indicators. We are looking primarily at indicators which analyse the wealth of information which exists in the companies now, to give us trend data. You do need to establish three, to four to five years of annual data before you can actually establish a trend. We have that with the 11 indicators we are using at the present time. We are looking within this study we have with the Drinking Water Inspectorate and the parallel study we are having with the Environment Agency to analyse historical information in a different way which can better inform our assessment of the current position and performance of the companies as the starting-up point to see whether the next period is going to be significantly different. It is using those indicators and using the information in asset inventories and things like this to guide us as to whether or not the next period is likely to be different. The future look is in the second stage of our analysis which I think we set out reasonably well in the annex to our response to this Committee.

  35. You said earlier on that there was a paucity of data on sewers. You said in your response to the Committee that you were looking at a joint initiative with the Environment Agency to start to develop serviceability indicators on sewers. What sort of timescale is that going to be?
  (Mr Fletcher) That is the next phase which should start in parallel with the work which is now already well in train with the Drinking Water Inspectorate on drinking water quality. We look to start that work later in this year.
  (Dr Emery) We have had some preliminary discussion with the Environment Agency. They are actually themselves looking at some of the data. We are waiting for the end of the feasibility study which is being done with the Drinking Water Inspectorate because the same principles apply to the analysis of data. We are then going to bring them both in parallel. We hope by the middle part of this year to have got some substantive way forward on this. We shall be consulting with the industry on the findings of this initial study and where we are going. We can, within our annual reporting cycle, start to get some additional indicators in these matters into our annual reporting round for 2002 hopefully and definitely by the 2003 June returns.
  (Mr Fletcher) May I just come back to your first point and why not just take the age or the overall asset condition? The Competition Commission, as you will know, looked at two small companies which appealed to them from the last Periodic Review. They gave both of them some increase and capital maintenance was an issue there. The Commission did not think the Ofwat approach was as yet fully formed and they were not prepared to take that as their way forward. In the end, for want of anything better, they did take a rather crude asset condition issue for Sutton and East Surrey, a small company south of London. It is interesting that the company itself does not propose actually to deal with the assets which are in the worst condition, for which it has been given the money. It is their right to choose to renew different assets which they regard as a higher priority. I do think it is an indication, rather out of the horse's mouth, that just going for asset condition would not be the right way forward.

  36. If companies start to do that, and let us suppose you are asking a company to make a certain level of efficiency savings, is there a danger that not doing asset maintenance becomes a nice easy way of making some of those efficiency savings? Do you think there may be a perverse incentive there?
  (Mr Fletcher) We have the two sorts of maintenance here. There is the day-to-day maintenance which is a crucial part of keeping an asset going, as it is in this 150-year-old building, making it still fit for purpose, and then there is the capital maintenance which is fully enshrined in the capital programme and which is remunerated through prices, it is part of the Periodic Review. We watch the companies very closely in terms of what they are doing on efficiency. We report on it annually. We report too on their progress towards their capital programmes. We are watching all of those issues very closely.

  37. On this whole general issue, you said in your evidence that the main responsibility has to lie with the companies, that there is a role for Ofwat. How far do you think the companies can be left to their own devices on this? Do you think they will produce a reasonable methodology for long-term capital maintenance?
  (Mr Fletcher) They would have a very reasonable grouse with Ofwat if we simply left them to their own devices and then picked and chose what we liked or did not like, having given them no guidance on what was being asked of them. We accept that it is Ofwat's job to help to set the tone, to work with the industry to develop things, so long as it never becomes, "Oh, it's Ofwat's job to see capital maintenance right". It is our job but it is primarily the company's job. They are answerable to the world for the maintenance of their assets.


  38. You seem to be saying what you have always said.
  (Mr Fletcher) There is continuity then.

  39. But we are not making any progress on this point. I still find it hard to understand how you can say that if you have indicators of service over the past, these will be replicated in the future necessarily. There must be some sounder methodological approach to this than just saying that if it has not broken it will not break again next year.
  (Mr Fletcher) I would suggest that it is always sensible to look at the past performance as a starting point. Back perhaps to Mrs Walley's point about the precautionary principle: is there reason to believe that we are approaching step changes on the overall state of the infrastructure?

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