Examination of Witnesses (Questions 40-54)
Wednesday 17 March 2004
Mr Philip Fletcher, and Ms Sue Cox
Q40 Mr Jenkins: On the system at the
present time, although 45% of flooding is due to the fact that
the system cannot take the extra flow, 45% is due to blockages.
Whose responsibility is it and who is undertaking the role of
educating the customers so as to ensure that these blockages do
not occur? You particularly mentioned fat. Are industries not
being visited and told the risks to the system? Are they being
charged for cleaning it?
Mr Fletcher: If we took fat as
just one example, who is responsible? We, the customers, are.
We put the wrong things down the loo. Disposable nappies go down
the loo.
Q41 Mr Jenkins: Not you; the customers?
Mr Fletcher: I accept that, but
we are also all customers and, as customers, we are partly responsible
for the blockages that occur. On the fat issue, if Thames Water
were giving evidence to the Committee, they would be regaling
you with stories of workers down in the sewers in the West End
with pickaxes dealing with what comes out of Soho. Of course those
who cook in the Soho restaurants are not entitled to pour their
fat down the drains but it is very difficult actually to work
out precisely who is responsible and to prosecute them. Nonetheless,
Thames Water, if they were here, would, I am sure, be saying this
is something they take very seriously and they look to make progress—and
that is something which all the companies have a role in and accept
they have a role in—in educating their customers.
Q42 Mr Jenkins: So it is the companies'
responsibility, not yours?
Mr Fletcher: It is our role to
ensure the customers are not having to pay for more than is strictly
necessary in their bills. So while I have to, if it is necessary,
increase price limits to cope with the pressures which an efficient
company faces, I have no responsibility for increasing price limits
if a company is being inefficient. So where it is sensible for
a company to be helping to brief its customers, educate its customers,
and if necessary prosecute customers and others who are putting
the wrong things down the drain, then that is the sort of thing
we would take into account.
Q43 Mr Jenkins: If the vast majority
of ordinary domestic customers do not contribute towards these
blockages and it is done by industry, should the polluter not
pay?
Mr Fletcher: The polluter should
pay, but it is one of those areas where we are talking about a
form of diffuse pollution—and this is why I brought all
of us in. We are all diffuse polluters so far as we drive or travel
in vehicles. It is very difficult to ensure that the costs of
that diffuse pollution are properly borne other than through the
tax system or, in this case, the near analogy of the water bills.
Q44 Mr Jenkins: On page 20, the case
you referred to in the High Court, I notice the comment ".
. . the Water Industry Act, which provided for the regulator to
balance the interests of individual flooded customers and customers
generally . . ." So the role of the regulator there is to
balance the interests of the individual flooded customers. How
do you see that balancing act?
Mr Fletcher: I see it in terms,
first of all, of accepting that the experience of sewer flooding,
especially in your home, is extremely nasty and that collectively,
as a society, we ought to be making rapid progress towards dealing
with it, wherever it can be dealt with, wherever it can be foreseen.
Q45 Mr Jenkins: There is no train of
thought here that the cost of improving and remedying it is greater
than the cost of just paying the compensation every now and again
to these individual customers?
Mr Fletcher: I accept that is
an entirely valid point, and where the cost of remedying for an
individual property is very high—and in some cases it is
very high; we could easily be talking about six figures for a
single property or for a scheme which only benefits a few properties,
and back to the houses at the bottom of the hill, where you can
only deal with that problem long term by putting in a substantial
new piece of plant in place. Clearly, cost per property is one
of the things that both the companies and Ofwat look at when we
are dealing with prioritisation. Compensation is, of course, another
proper issue. In a seminar we have held since the NAO Report was
published, last week in fact, with the various parties who are
all interested in this, including the insurers, customer representatives
and companies, we experienced a general recognition that customers
should not be out of pocket as a consequence of a sewer flooding
event. This is where we get the difficult interaction between
insurance, and I think the reasonable expectation of society that
householders should be insured on the one hand, and the need to
ensure that a sewer-flooded customer, who might be a customer
who is not well off and does not have full insurance cover, is
not driven still further into poverty or near-poverty by this
event which was no fault of his. We are constantly trying, and
it was properly brought out, I think, in this House of Lords case,
to get the balance right, and the balance will shift over time.
We are already making significantly more progress than we were
in the period immediately after privatisation.
Q46 Mr Jenkins: Do you think you have
the balance right?
Mr Fletcher: That would sound
complacent of me, and I cannot anticipate today, when I am just
about to look to strike the balance through this very definite
process between bills going up and additional progress on sewer
flooding.
Q47 Mr Jenkins: On page 21, figure 9,
it gives a range of methods used to estimate the number of properties
at risk, and there seems to be a great level of inconsistency
between different companies. Is this down to the company not bothering
to invest in information-gathering, is it down to the company
not wanting the information because if it has the information
it will have to do something about it, and why is there not a
consistent approach to this problem?
Mr Fletcher: I think it is important
that the companies should really own their registers. These are
the registers of the assets and the properties affected by their
assets, for which they are responsible. So I would not look for
total uniformity, but I would entirely accept the underlying point
of your question, and indeed of the NAO Report, that we cannot
afford to have too much discrepancy between these registers.
Q48 Mr Jenkins: Let me go back a step.
It says in the last question what your role was in relation to
the individual customer. You gave a long answer. I wanted a robust
defence of the individual customer. Then how can you defend the
individual customer, when you are prepared to put up with the
inconsistency of companies when they fail to report flooding on
a regular basis?
Mr Fletcher: They are not failing
to report flooding.
Q49 Mr Jenkins: How do you know?
Mr Fletcher: Because we have reporters.
We do not just take the companies' word for it; we have independent
engineering consultants who vet the companies' figures, not just
in this area but in other areas. One of the suggestions in the
NAO Report is that our reporters should be one of the elements
for looking to ensure that there is a broad consistency between
the companies' registers, and I agree with that and think that
this is something that will develop and improve over time.
Q50 Mr Jenkins: It will not develop over
time unless you put more effort into it, surely?
Mr Fletcher: We are putting effort
into it. I have obviously failed to convince you, Mr Jenkins.
I assure you that we are putting a lot of effort into this whole
series of issues to make sure we better understand the problems.
We are absolutely convinced that all the incidents that are reported
to the companies are reported on to us. It would not be in the
companies' interests to try and draw the wool over our eyes. What
we do not track of course are those, like some of these external
floodings, which are never reported to the company, perhaps for
reasons of worry about blight.
Q51 Mr Jenkins: Sending a report to—
Mr Fletcher: Yes.
Q52 Mr Jenkins: I know the infrastructure
is a complete mish-mash of systems and I know how difficult it
is to assess the assets when you are trying to work in that system;
but without consistency and the ability to cross-check between
companies, one of the things companies will say to you—and
I know—"to remedy this, it will cost a million pounds,
and that will mean we are going to put our prices up to pay for
the remedial work and therefore we have got this investigation."
Just how rigorous are you in that investigation to make sure work
is done and costed accurately?
Mr Fletcher: It is for the companies
to cost the issues in their business plans, and this is a general
point, not specific to sewer flooding. When we get those plans,
although what we want to do is work from those plans, we first
of all have had the same reporters analysing the costs that the
companies are incurring; because there is an obvious danger that
a company might gold-plate its costs in preparing its plan. They
have done that in respect of next year's price limits from last
year onwards. We have had a very vigorous go at the draft business
plans that the companies put in last summer. We will have another
very vigorous go at the final plans that come in next month. We
shall not let the companies get away with gold-plating or false
assumptions underlying their plans; but we do want them to make
progress in this area, as in other areas, where it is necessary
to ensure the infrastructure is fit for purpose.
Q53 Mr Allan: I want to come back to
the point you raised about long-term investment and the price
points you are discussing at the moment. We recognise that investment
was a bit of a black art pre-privatisation and some of the earlier
investments certainly in York was in Roman Cisterce, and then
over the ensuing 1,800 years we have invested various things with
local authorities and other bodies. We now have at page 18, figure
7, a proper chart of the investment and a response to the price
points. It is a roller-coaster and it looks in a sense as though
you are responsible for boom and bust in sewerage investment from
that diagram. Can we expect to see that continue?
Mr Fletcher: It is not an excuse,
and I do not see this as an acceptable profile. Believe me, it
was a whole lot worse when these were nationalised industries
working within the public sector on a one-year cycle in the 1980s.
At least we have got it on to a five-year cycle rather than seeing
that stupid end of year sudden push. However, this is not an acceptable
profile. It is clearly not an efficient one. It may be understandable—companies
wait for their price limits before they are sure what their programmes
are going to be; so then they start planning; so it takes some
time to let the contracts, and therefore we see this build-up.
Then we see it falling away again when we get into the period
of uncertainty before the next review. Ofwat has sought to at
least mitigate that effect in the current review by authorising,
before Christmas 2003, companies to make an early start on certain
projects which they were able to identify, which we, after consultation
with the environmental regulators and the Environment Department
were convinced were going to be necessary. So they are doing the
planning in the certainty that I shall allow certain projects
going forward. I am afraid it will not be enough to eliminate
this peak and trough position, which I discuss regularly with
the contractors to the industry, and which I share their dislike
of. I hope that over time—and it is a long-term industry—we
shall make progress gradually in pressing down the peaks and building
up the troughs.
Q54 Mr Allan: When the NAO come back
to look at this in another 10 or 15 years, then if you have succeeded,
we will see this flat line.
Mr Fletcher: Yes, I think that
is a fair indicator of whether collectively, not just the regulator—though
I accept my part in that—the industry is able to adopt a
more efficient process to its contracting and investment.
Chairman: Thank you, Mr Fletcher. We
are very grateful to you and your colleagues for coming here today.
As you said, this is a subject that is out of sight but not out
of mind; but of course for 7,000 people a year it is very much
in sight and very much on their minds. I am sure in our report
we will wish to return to this subject and see how greater pressure
can be exerted on the water company to avoid this acute distress.
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