Water: defending the indefensible

By Richard North - August 17, 2022

On 7 April, Yorkshire Water announced that its current CEO, the vastly overpaid Liz Barber, was retiring on 6 May, to be replaced by Nicola Shaw on an undisclosed salary – presumed to be at the same level as Barber’s £1.4 million annual salary and benefits.

In a gushing press release, the company paid tribute to “Liz”, who had joined the company in November 2010 as group director of finance and regulation, before stepping up to become CEO in September 2019.

Yorkshire Water chair Vanda Murray declared that: “Liz has made a huge contribution to the company in both her leadership roles”, somehow forgetting to remark that, as director of regulation, one of Liz’s greatest contributions was to leave a trail of shit in Bradford Beck so extensive and long-lasting that the scandalised judge accused her company of “reckless offending”, before imposing a fine of £1.6 million with £22,112.79 in costs.

That does not, of course, prevent Yorkshire Water from grandly declaring that “protecting Yorkshire’s environment is at the heart of everything we do”. “From supplying our customers with clean water” the company trills, “to treating wastewater and returning it safely back to our rivers, we do all we can to protect the environment every step of the way”.

Dumping shit into Bradford Beck on 25 separate occasions over a period of eight months, however, was not the full extent of Liz’s accomplishments. As CEO, she left a legacy of the highest number of serious water pollution incidents in England for the reporting period 2020-2021, totalling 48 incidents, an increase from 41 in the previous reporting year.

On the vexed issue of water leakage, in Liz’s first year as finance and regulation director, her company turned out the dismal performance of 325 million litres a day lost, 9 percent above its target of 297 million litres.

During her three-year tenure as CEO, her company managed a rolling average of 304.2 million litres a day, which in the grotesque, Goebbelesque litany of the company was interpreted as “a 3.5 percent reduction on the baseline”, for which performance the regulator Ofwat allowed the company to reward itself by adding £56,000 to the amount it charged its customers.

By careful manipulation of the statistics, this now enables the company to claim a reduction of 14 percent over five years, while complaining that the shortage of rain leaves the ground dry “which can cause pipes to fracture more easily”.

Having increased its field teams, so that it “can catch more small leaks before they turn into bursts”, the company is on track to qualify for permission from Ofwat to cut its leakage reduction effort on the grounds that the reduced loss rate makes tackling leaks no longer economically viable.

Apart from sponsoring such dubious initiatives, the one thing our Liz was really good at was ripping off her customers who were careless enough to miss the payment deadline set in the one and only reminder the company sent to late payers for its annual charges.

Nanoseconds after the expiry date, thousands of court summonses were winging their way to these customers, each computer-generated letter attracting a “solicitor’s fee” of £35. This was quickly escalated to an additional debt of over £100 as the company sought CCJs on an industrial scale, thereby ensuring that those who had greatest difficulty paying were forced to pay most, under legal duress.

Such inventiveness attracted the plaudits of chair Vanda Murray who complimented Liz on doing “a great deal to improve [the] financial resilience” of the company. Whether that was enough to cover the £1.6 million fine – and the other pollution penalties during her tenure, bringing the total to over £2 million – was not disclosed.

However, given Liz’s lamentable pollution record, where even Ofwat has “serious concerns” over shortcomings in the company’s sewage treatment works, this time round, one might have expected Yorkshire Water to have appointed a CEO who actually knows what they are doing. But, instead, they’ve hired Nicola Shaw.

A BA in modern history and economics at Lincoln College Oxford (where Sushi got his degree) paved the way for Nicola’s first job with London Transport. A second degree at MIT in “transportation”, then smoothed her path into the World Bank and a number of transportation jobs, before emerging as an executive director with the National Grid whence she takes on the role of CEO at Yorkshire Water.

She thus joins the company at its head, with no qualifications in the field of water supply or wastewater management, nor any operational experience nor any background in the industry. Nevertheless, she is “delighted” to be joining Yorkshire Water – as indeed anyone would, on being given a job for which one was totally unqualified – and looks forward to working with the “great people” who deliver water and wastewater services to “the county” – unaware, perhaps, that Yorkshire is, in fact, four counties.

Yet this is one of the ramshackle organisations to which Ofwat chief, David Black, rushes to defend on the BBC, attracting reports in most of the national newspapers. The Guardian for instance, has Black complaining that critics were not giving companies enough credit for actions being taken to reduce leaks and improve water supply, suggesting they did not understand the “complex” issue.

However, this is a man who has a background in finance, having gained a BA in management studies, with a Masters to follow, having worked for the Treasury in New Zealand and then the UK, before working for a number of consultancy firms, whence he joined Ofwat in 2012, rising to CEO this year.

Like Nicola Shaw, therefore, Black has no qualifications in the field of water supply or wastewater management, nor any operational experience nor any background in the industry. His total exposure is working for the economic regulator, in a single national environment.

Interestingly, the Mail has Black being asked whether greater investment to fix old pipes would help solve the leakage issue.

His view was that this was “not necessarily true”. “Some of the biggest problems we face on networks”, he said, “are from supposedly modern infrastructure, so 40 percent of water mains have been renewed or replaced since privatisation”.

This harps back to my point about the use of polyethylene pipes. With a design life of 50 years, some of them have been in the ground that long and are close to the end of their working life, not even taking account of the generally high failure rate.

This means, as I wrote earlier, that any renewal programme can have a relatively high failure level built into it, while connections to new building developments can also fail prematurely. But we get nothing from Black about the use of more durable materials to increase the reliability of the system.

Nor, with his reference to water mains, does he allude to Japanese experience, where only 3 percent of water is lost from mains leakage, while 97 percent is lost from the service pipes which connect the mains to customers’ premises.

A recent study suggested that 0.7 percent of PE pipework should be replaced each year, yet we are nowhere near that, with some estimates putting the replacement rate closer to 0.05 percent each year. Failure, as I have been known to say, is baked into the system.

Asked if new targets set for leaks are tough enough, Black claimed that they were “challenging but achievable”, yet the target for the next review period is 16 percent, which means shaving a mere 3.2 percent off the estimated national rate of 20 percent – an extremely relaxed target which is very far from being “challenging”.

In the longer term, the industry is only expected to cut leakage by half, to 10 percent by 2050, despite the Japanese currently working to 2 percent. UK consumers, on the other hand, are being “encouraged” to reduce their consumption by 20 percent.

Whether Black’s economy with the actualité is a reflection of his ignorance of industry operations, or he is being deliberately disingenuous, is difficult to say, but he gets no quarter from Alice Thomson in The Times.

For the chief executives of the water companies, she writes, it’s about their salaries and bonuses, needed to pay for the upkeep of their swimming pools. They were collectively paid £58 million over the past five years, receiving salary packages of up to £2.4 million. Yet last year only 14 percent of English rivers were classed as healthy, and one as swimmable, with the majority found to contain a cocktail of sewage and agricultural waste.

Even the Guardian takes a swipe at the regulator and nor does it get much sympathy in the Telegraph, where Black is accused of acting as an “apologist” for the water companies.

The paper notes that, between 1994 and 2001, the volume of leaks dropped from five billion litres a day to around 3.3 billion. But since then, it says, the level has dropped down to only 3.1 billion – undoubtedly an effect of the SELL doctrine, despite this not being mentioned.

Thus, all Black’s intervention really shows us is that, in addition to a dysfunctional industry, the friendless regulator is also part of the problem.