Windermere sewage = sickening

[200sols]

What do you mean? How do they differ from standard companies. The more money you spend running a business, the less money you have to pay out things like dividends. Who is responsible for making decisions on things like maintenance spending, reporting and general allocation of spending?

Ofwat.

People in here have some crazy ideas about business though. In general the aim is not to trash a company and plenty of industries manage to thrive and pay dividends. I think the issue with water is the assets are fixed the customers are fixed so the only value comes from a dividend.

 

[fez]

Ofwat.

People in here have some crazy ideas about business though. In general the aim is not to trash a company and plenty of industries manage to thrive and pay dividends. I think the issue with water is the assets are fixed the customers are fixed so the only value comes from a dividend.

Ofwat dictate how much they spend on everything as a company? I thought they have oversight of the company but nothing like that level of control.

 

[Jono8]

If you can make vast sums of money for your owners/shareholders then you are worth a huge sum of money. As with all these things. We have completely removed the personal responsibility and liability from individuals under some weird assumption that the damage to the company or profits will discourage illegal/bad behaviour. Firstly that falls apart when you see the fines vs the benefits of their law breaking. Secondly, why on earth would someone give a **** whether the company they head for 10 years struggles after they are gone if they have made many lifetimes of money in that time.

The post office scandal will be a perfect example of no one being held remotely responsible for it. Heads will roll, talk will be of lessons learned and the tax payer will almost certainly foot a monstrous bill for it.

This. These essential services being privatised just doesn't work.

As you say, the people in charge and large shareholders make such vast sums of money for a few years that they never have to worry about money ever again, and it doesn't matter if the company goes bust. They got there's.

...and to add insult to injury, most of these people on insane money like that boss of Severn Trent probably get some collosal severance package, even if they **** it all up and get shown the door.


All that happens, as you mention, is that these robber barons make off with all the money, and the government/tax payers end up having to bail them out because we can't really run a modern society without essential services like running water.

 

[200sols]

Ofwat dictate how much they spend on everything as a company? I thought they have oversight of the company but nothing like that level of control.

May have missed some of the convo but Ofwat approve all their spending plans including investments and what they can charge on rolling 5 year cycles, they set the constraints in which they operate and dividends that can be paid. The industry is just not a good fit for the private model but we need something a lot better than what came before which was worse.

 

[Kenai]

Ofwat dictate how much they spend on everything as a company? I thought they have oversight of the company but nothing like that level of control.

To a much larger extent than most people probably realise yes.

The water companies submit a plan every 5 years (they've just done 'PR24' in preparation for the 2025 onwards investment period) and say they'd like to spend £XYZ to build ABC, repair DEF, etc. etc. and then OFWAT come back and in simplistic terms usually tell them no, that's too much money and would make customer bills too high, so we'll let you spend £X (but not £YZ) and you can build AB, repair DE, etc.

Whilst there would still have been significant amounts of money extracted from some of these businesses, the state of the industry could have been much improved if OFWAT were more concerned with making sure the right things were built and improved and less concerned with keeping bills down and giving people an unrealistic vision of how expensive water and more particularly wastewater is to actually treat to the standards expected by the DWI and the EA.

 

[ttaskmaster]

What do you mean? How do they differ from standard companies.

CEOs (I presume) and their boards of execs run those companies and decide what gets done with the profits and all that.
Water companies get that dictated to them by their owners (who work on behalf of, but are not themselves, the shareholders) and by the regulator.

Ofwat dictate how much they spend on everything as a company? I thought they have oversight of the company but nothing like that level of control.

In a word - YES!!

As previously mentioned, Thames Water wanted to invest £16 billion in infrastructure during this current AMP. They were allowed £3 billion by OFWAT.
They then tried £12 billion and were allowed 4.
What do you think their owners will do with all that excess money......?

 

[b0rn2sk8]

CEOs (I presume) and their boards of execs run those companies and decide what gets done with the profits and all that.
Water companies get that dictated to them by their owners (who work on behalf of, but are not themselves, the shareholders) and by the regulator.

In a word - YES!!

As previously mentioned, Thames Water wanted to invest £16 billion in infrastructure during this current AMP. They were allowed £3 billion by OFWAT.
They then tried £12 billion and were allowed 4.
What do you think their owners will do with all that excess money......?

The money was never ‘raised’ in the first place. The £16b would have come from sticking a £100 on every bill.

Moving on from the above, there is so much misplaced apathy in this thread and clearly people just don’t understand the fundamentals of how this industry is set up and regulated which basically impacts everything they do. We’ve started getting there over the last page or so but even the above post is an example of acknowledging the regulator but then ignoring their remit.

Water companies have been privatised, we argue all day where this has been a success or not but actually it’s irrelevant in this conversation. The current issues we have now could have been resolved with water companies in public or private hands. It is what is it is and we are not going nationalise them anytime soon. So what can we do about it?

So let’s get something out of the way first and I’m sure plenty of people won’t agree but this point is important. Water companies don’t make significant amounts of profit and that is by design. The reason investors like them is because they have historically been incredibly stable meaning they generate a consistent return, this is very important and were a stable base investment meaning you could take bigger risks on other investment decisions.

Their profit is effectively fixed by one of the regulators who’s remit is essentially to keep bills as low as possible and ensuring water companies are able to generate that modest return.

The current state of water companies is due to a complete failure of regulation. I specifically used the language ‘one of the regulators’ above because they have two, OFWAT and the EA.

OFWAT is all about bills and investment, the EA is about policing pollution. The issue is the objectives of regulator are not aligned, in fact they are at odds with each other. This creates a circular issue which can’t be resolved within the current framework.

Basically OFWAT’s remit of to keep consumer bills as low as possible (while maintaining that modest return for investors). That effectively means water companies maintain the status quo in terms of infrastructure because they are not allowed to invest in improving it because bills would go up to pay for it. Essentially the only thing they can invest in is ‘efficiency savings’ which don’t rent to improve anything, they just mean doing the same thing for less.

The EAs role is to enforce environmental standards which are actually quite tough if they were met. However they can’t be met by water companies because they are not allowed to invest in infrastructure because that would impact bills. Water companies can’t meet the standards so the EA fine them. The cycle continues on that basis.

Basically OFWAT prevents the water companies from being able to meet the standards set by Defra and enforced by the EA, NRW and EPA Scotland. There isn’t really much the latter can do about standards because OFWAT prevents the resolution (investment) in the name of keeping bills down.

It’s actually a ridiculous situation when you write it down.

In my view, OFWAT probably needs to be subsumed into the environment regulators with a single set of aligned objectives where a better balance between environmental improvements and spending can be struck. At the moment it’s very much swung in the favour of short term lower bills and it has been like that for decades.

The enemy here is not investors and shareholders, it’s failed regulation. If water companies were public, I can’t see the current situation being any different due to the regulation.

Edit: I missed the key end point, the government controls the regulators and sets their remit. They know it is a problem but it’s easier for them to blame water companies rather than fixing it despite them setting the rules of the game.

Fixing it requires the government acknowledging that they’ve presided over decades of can kicking where water has been set at a price which is too cheap to meet the standards we set for ourselves.

 

[jpaul]

interview on r4 today with Chris Whitty from new report ,
can't find the report on the web but would be interesting to know if the EU countries do a better job (Seine)
but as he said our system isn't designed to make all water swimmable , on top of the overflow issue

They also had to improve waste water treatment by using technology such as disinfection by ultraviolet light and by introducing proactive maintenance of pipe networks. The academy suggested introducing incentives for the public to remove impervious hardstanding surfaces from homes in urban areas, such as patios or paved-over gardens. This would help more water be absorbed into the ground that would otherwise run into sewage pipes and add to the chances of overflows.Sir Chris warned that even treated sewage could still contain human bacteria and viruses with the potential to cause serious disease if swallowed.Sewage spills during periods of heavy rain were only “half the problem, not the full problem”, because some human faecal organisms also remained in treated water when it was released back into the environment. “The lower the water [levels], the less they’re diluted out,” he added.

 

[ttaskmaster]

The money was never ‘raised’ in the first place. The £16b would have come from sticking a £100 on every bill.

With 18 million customers, that would only have raised £1.8 billion.
No, the £16bn was already secured well ahead of AMP7 through investors and loans, with the agreement that dividends and management bonuses would not be paid until 2020. This was later extended to 2025 and, as such, Thames has not paid anything to it's shareholders for over 7 years.

OFWAT's refusal to allow the £16bn investment was about restricting debt and liability, which could otherwise have put the company at risk of financial collapse, and/or have impacted customer bills.

Pretty good post otherwise, though.

 

[b0rn2sk8]

The numbers were illustrative (e.g. small amount added to bills each year) and not meant to be literal.

In practice, anny investment would be paid back over many years, not just one or 5. E.g. £16b would be invested in that 5 year period but paid back over a much longer time period at a much more manageable cost to customers.

The last part of your post is key, unless the investment drives at least that again in efficiency savings e.g. do the same or more with less - any investment is likely to impact customers bills because they need to provide a return on that investment.

Most businesses invest to improve their service to customers for the purpose of generating a bigger return (e.g. extract more money out of them or cut overall costs while providing the same).

That simply isn’t possible under the regulatory framework which water companies operate. Likewise the vast majority of people just don’t value better sewage treatment as they don’t really care what happens after where the drain ends on their property.

 

[Nasher]

You can see where all the money has gone looking at how rich these CEOs and shareholders all. It's not a matter of what the water companies can afford, they can afford it by paying them less. Bills don't need to rise.

If there was the threat of actual prison sentences and fines in line with their wealth, you'd see how fast they can fix things when they want to.

Then backdate it to when it was first privatised and send all the fatcats the bill.

 

[200sols]

The enemy here is not investors and shareholders, it’s failed regulation

Easy scapegoat for the government though to further vilify shareholders.

 

[bigmike20vt]

The numbers were illustrative (e.g. small amount added to bills each year) and not meant to be literal.

In practice, anny investment would be paid back over many years, not just one or 5. E.g. £16b would be invested in that 5 year period but paid back over a much longer time period at a much more manageable cost to customers.

The last part of your post is key, unless the investment drives at least that again in efficiency savings e.g. do the same or more with less - any investment is likely to impact customers bills because they need to provide a return on that investment.

Most businesses invest to improve their service to customers for the purpose of generating a bigger return (e.g. extract more money out of them or cut overall costs while providing the same).

That simply isn’t possible under the regulatory framework which water companies operate. Likewise the vast majority of people just don’t value better sewage treatment as they don’t really care what happens after where the drain ends on their property.

I fully accept that it isnt as simple as blaming the share holders... but.......... when people are talking salaries in the figures of multiple millions and approaching £100 billion has been paid to share holders since privatisation (according to university of Greenwich study) , I think it is fair to say the money leeched out to investors is at least part of the problem.

Water industry investors have withdrawn billions, claims research - BBC News

A report suggests shareholders have taken billons but failed to invest as water bills look set to rise.

www.bbc.co.uk

now whether their figure is correct or whether it is "only £52 billion" the following makes no sense to me

"In five out of the 10 years that Australian firm Macquarie was Thames Water’s biggest shareholder, dividends exceeded the amount of profit the company was making – and debt quadrupled from £2.5bn to more than £10bn."

I am no investment banker, but surely dividends should be based on how well a company is doing, and forcing a company into debt whilst paying huge dividends just seems fundamentally wrong to me.

 

[b0rn2sk8]

Without adding up all of the sales, profits and dividends paid since the water companies were privatised, those numbers are utterly meaningless because they lack context.

£52b sounds like a lot but they’ve been privatised since 1989, that’s 35 years worth. That’s a long time and when you start splitting it down, the number for each individual water company per year gets a lot smaller.

It’s akin to the headlines of Amazon paying X corporation tax without looking at how that number has been derived.

 

[bigmike20vt]

Without adding up all of the sales, profits and dividends paid since the water companies were privatised, those numbers are utterly meaningless because they lack context.

£52b sounds like a lot but they’ve been privatised since 1989, that’s 35 years worth. That’s a long time and when you start splitting it down, the number for each individual water company per year gets a lot smaller.

It’s akin to the headlines of Amazon paying X corporation tax without looking at how that number has been derived.

that is still ignoring the fact that they paid more out in dividends than the profit thames water was making (according to the article). surely dividends should be linked to a percentage of the profit made, and come out of that, not out of the business itself?

 

[ttaskmaster]

The last part of your post is key, unless the investment drives at least that again in efficiency savings e.g. do the same or more with less - any investment is likely to impact customers bills because they need to provide a return on that investment.

Most businesses invest to improve their service to customers for the purpose of generating a bigger return (e.g. extract more money out of them or cut overall costs while providing the same).

The return was supposed to be almost entirely rehabilitative works. £16bn was reckoned to be the minimum needed to stop the existing network problems from worsening. That's why everyone was stunned when OFWAT refused it.
It's also entirely about cost-cutting. Proactive repair works generally cost between a third and a tenth of what reactive works do, on average, although depending which assets and which parts of the network fail, the reactive interventions can often cost a lot more than that. A single Thames mains burst once cost them £90 million, as they stopped the six main railway lines from London to the South for three days, and NR hit them with the bill.

However, in previous AMPs the Powers That Be had a Fix-On-Fail policy, where they looked at what they'd spent in the past and decided that since XYZ had not needed fixing last AMP, it didn't need fixing this one and money could be saved. That's what led to multiple high profile failures, such as Littlemore PS, and court fines up to £20 million. This time around someone had their head screwed on, listened to asset inspectors and sought the proactive route of spending a bit now rather than spending a load when it failed. It was also the reason why the proposal was so keen to specifically highlight that all this would be done without needing to increase customer bills at all.

You can see where all the money has gone looking at how rich these CEOs and shareholders all. It's not a matter of what the water companies can afford, they can afford it by paying them less. Bills don't need to rise.

Where is this, then?
Who are these rich CEOs?
You might want to compare the exec/CEO salaries of similarly sized companies. The UK average CEO salary is around £4.2m, while that of most water companies' CEOs seem to sit around £2.3m, some even including bonuses.
In the grand scheme of things, UK Civil Enegineering is considered quite underpaid, and it seems that even the CEOs are inlcuded in that.

If there was the threat of actual prison sentences and fines in line with their wealth, you'd see how fast they can fix things when they want to.

No, you'd see a lot of positions being hastily vacated and then staying empty, all while the people that actually plundered the industry continue to get away scott-free... or do you really think the entirety of the China Investment Company will happily come sit in a UK prison for their naughtiness?
At best, you'd get some stooge who was paid a load of cash to come sit in the chair, take the fall if something went wrong, and funnelling dividends out to the shareholders before it really does.

Then backdate it to when it was first privatised and send all the fatcats the bill.

Half are probably dead by now. The rest will be in tax havens with offshore accounts and probably somewhat untouchable.
Besides, it's all buried in layers of deniablity and responsibility, between the shell corporations and parent/holding companies.

I am no investment banker, but surely dividends should be based on how well a company is doing, and forcing a company into debt whilst paying huge dividends just seems fundamentally wrong to me.

I'll give you a choice - You're going to buy some shares in a foreign country. You then either get paid a share of £230 million in 5 years time, if they do a good job... or you get the same percentage share of £20 billion now and then sell the company off to some other schmuck before it tanks.

Whadd'ja wanna do?

 

[Zenduri]

Who would have thought.....

Water firms ask for bill rises of between 24% and 91%

Southern Water wants to increase its bills by £436 a year, but is not expected to get approval.

www.bbc.co.uk

 

[ttaskmaster]

Who would have thought.....

What, that Southern Water, owned by the same Macquarries that utterly stuffed Thames Water, are themselves now so stuffed that they need to almost double their bills?

We, the water industry, hate to say we told ya so, but......

 

[coupe69]

Who would have thought.....

You wouldn't mind so much if you were getting value for money and great service, but we all know the uplift will merely mean lining the pockets of the shareholders and top execs. Honestly, it's a joke...

 

[b0rn2sk8]

that is still ignoring the fact that they paid more out in dividends than the profit thames water was making (according to the article). surely dividends should be linked to a percentage of the profit made, and come out of that, not out of the business itself?

Dividends can only be paid from retained earnings, those earnings don’t need to be from the current/previous year which I think is the part you are missing.

It’s not abnormal to see dividends paid in years where there are losses being made. Investors want a steady return, profit can fluctuate.