Examination of Witnesses (Questions 80-99)
OFWAT
29 JANUARY 2007
Q80 Chairman: Our Clerk just told
me that he has been trying for three years to get a meter from
Thames Water without success.
Philip Fletcher: Please will your
Clerk write to Ofwat or the Consumer Council for Water? Like all
of us who are Thames consumers, your Clerk has a right to a meter
unless for technical reasons it cannot be installed. Thames should
have installed it within a maximum of six months. If it has failed,
it has failed again—I am afraid. There are some technical
circumstances in which it is not practical to have an individual
meter such as in high-rise blocks of flats. In those circumstances,
your Clerk—and everyone else—should be charged what
he would have been if he had had a meter.
Chairman: I am sure that he heard that.
Q81 Mr Touhig: Why is Ofwat's data
collection on water demand and usage, and on leakage so poor?
Regina Finn: We do not think that
it is very poor. In fact, we use a number of methodologies—top-down
and bottom-up methods, as Mr Fletcher said—to get companies
to collect data on consumption, leakage and other usage, and the
water distribution system, and to reconcile those methods.
Q82 Mr Touhig: So you do not agree
with section 2A of the report, on page 4, which reads: "There
are inherent weaknesses in information on demand for water and
leakage."
Regina Finn: As I mentioned earlier,
we agree that there are inherent weaknesses because it is necessary
to make estimates. We cannot measure every customer's usage because
only 28% of customers are metered. That is an inherent weakness
and we must use estimating techniques.
Q83 Mr Touhig: We have established
that you cannot tell us how much water is being consumed, which
means that you cannot calculate the level of leakage, can you?
Regina Finn: We know how much
water is being used—
Q84 Mr Touhig: I thought that the
Chairman had been told that they are estimates.
Regina Finn: They are estimates.
It will always be necessary to use estimates to some degree. Certainly
until there is 100% metering in this country we will have to estimate
usage. However, our data and estimating techniques are robust
and continue to improve.
Q85 Mr Touhig: But they are so different
because, as the Report points out, every water company uses a
different methodology for calculating consumption and leakage.
You have not even got that right. Why have you not at least got
them to use one method?
Regina Finn: That is not the case.
There are some differences between companies in some of their
assumptions and methodologies, but we have been involved in developing
best practice.
Q86 Mr Touhig: Is there a common,
standard method?
Regina Finn: There is best practice.
Q87 Mr Touhig: So the Report is incorrect
when it says that there is not.
Regina Finn: That is not what
I am saying. A best-practice approach has been developed, and
companies are encouraged to use it.
Q88 Mr Touhig: Encouraged to use
it?
Regina Finn: We review what they
do and challenge them on their estimates, but some differences
remain in the way in which companies arrive at their assumptions
and make their estimates. On the one hand, we need to remove as
many inconsistencies as possible, and on the other, we need companies
to continue to innovate and improve their estimation techniques.
We do not want to stop them doing that.
Q89 Mr Touhig: I am sure that you
would not, but it appears from your answer that the Report is
accurate—there is no uniform method of calculating water
usage and leakage.
Philip Fletcher: Mr Touhig, it
is an advantage to have 22 companies each exploring the best way
to do this. That is one way in which to develop best practice,
rather than sticking with one absolutely rigid, uniform practice
for everybody that might not be as appropriate for a company with
30,000 as for one with 8 million customers.
Q90 Mr Touhig: Companies do things
quite differently. South East Water says that metered and unmetered
customers use the same amount of water, but Sutton and East Surrey
Water says that metered customers use 24% less water. Both cannot
be right.
Philip Fletcher: Some differences
will be attributable to the different characteristics of the customers
of those two companies. But yes, I am sure that you are right—both
extremes cannot be right.
Q91 Mr Touhig: South East Water is
the only company that says that there is no difference. Have you
had the chairman in for a chat?
Philip Fletcher: Well, yes, we
talk to each company individually each year as they develop their
approach to leakage—above all as we move towards the next
periodic review—to test that each company has the system
that is appropriate for it. When it comes to the extent to which
they are not observing common best practice, they have to have
a very good reason why not.
Q92 Mr Touhig: But they have explained
to you why they believe that there is no difference?
Philip Fletcher: They have not
persuaded us that there is no difference, so they need to go on
working on it.
Q93 Mr Touhig: In his opening questions,
the Chairman referred to previous Reports of this Committee. The
Report points out that so far as water efficiency projects are
concerned, you do not really know which is most effective.
Philip Fletcher: This goes back
to the problem; many drives to create water efficiency will not
have a single effective outcome. To use an example from last summer's
drought, we believe that an effective device used by a group of
the companies working with the Environment Agency was a cinema
campaign to help customers to understand the simple things that
they can do to save water in a drought and to make it clear at
the same time that the companies were also doing their bit and
spending extra money to bring leakage down below the normal economic
level of leakage to reflect the extreme value of water in a drought.
Although the effectiveness of that can be measured as any advertising
campaign can be measured, and generally came through well, it
was a short-term measure and does not lend itself to a precise
output all the time.
Q94 Mr Touhig: But you have co-funded
a number of projects to improve efficiency. Indeed, the appendix
on page 25, from a previous report, states: "Ofwat should
identify which water efficiency measures are the most effective
in helping customers waste less water, and share this information
with water companies." You do not know which is the most
effective. How much money have you spent on all this? You have
invested money; you have co-funded this work. How much have you
spent on what outcome?
Philip Fletcher: We are spending
only a few thousand pounds, because we are co-funding a report
that is produced by the industry's water research institution
backed by companies with a turnover of £8 billion. We need
to spend only what is necessary to give us the leverage to ensure
that the studies are being properly conducted and are delivering
the right results. It is not the amount that we at Ofwat are spending
but the effectiveness of the outcomes.
Q95 Mr Touhig: So, you have spent
only a few thousand pounds. You have not spent a lot of money
on co-funding projects to find out the most efficient way to save
water.
Philip Fletcher: On the basis
that this cannot be solved overnight, we need steadily to develop
the effectiveness. The next report on the issue, which is one
of a continuing series of reports, will come through in summer
of this year—in June, we believe.
Q96 Mr Touhig: But you seem to me
to be very laid-back. The questioning from colleagues today suggests
that you have a very hands-off approach. It has been suggested
that you might perhaps be a bit of a soft touch; you would deny
that, I am sure?
Philip Fletcher: We would.
Q97 Mr Touhig: As Mr Khan thoroughly
explored, you can impose fines but you have not. You can take
action against water companies but you have not.
Philip Fletcher: On the fines,
we have only been able to apply them for the first time to the
evidence that we received just under a year ago—
Mr Touhig: I wish you were my bank manager.
Philip Fletcher: Since that time,
four companies are under notice of a possible fine—Thames
twice over—in respect of leakage, though the outcome was
a different one. Three companies—again, including Thames—are
under notice in respect of failure to provide good, reliable,
accurate, and complete information to Ofwat. Another, United Utilities,
may—we do not know yet—be at risk of a fine for its
action on transfer pricing. It seems to me that that is quite
prompt use of a new power given by Parliament, bearing in mind
that the leverage that it affords us—we are grateful to
the House for giving us that power, because even if we do not
use a fine it enables us to get a much more effective outcome—
Q98 Mr Touhig: You do not use a fine;
we have established that pretty well.
Philip Fletcher: When we have
a legally binding undertaking, as we do from Thames, it brings
us a better outcome from customers than when we did not have the
fining power, even though we do not use the fines.
Q99 Mr Touhig: A special part of
the report is on Thames, and you have had the embarrassment of
the Chairman explaining that the Clerk of this Committee has been
waiting three years to get a meter. I assume you will be on the
telephone tonight to the chairman of Thames to say what a hell
of an embarrassment he has caused you in the PAC this afternoon.
Philip Fletcher: If Thames is
not monitoring this hearing, it is failing even more than I would
have expected; but we will make sure that the point is drawn to
Thames's attention.
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