Select Committee on Public Accounts Minutes of Evidence

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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