Is now the time for privatised Water Companies to become not for profit organisations

This article was produced by Jill Crawford from Irwin Mitchell

 

Introduction – The focus on the private water industry

There is no doubt that the water industry in England and Wales is under pressure. The pressures it faces are many with challenges to address the deterioration of our rivers and seas (perceived by many to be due to increasing discharges of raw sewage by water companies), intensification of agricultural and change in land use and an ever-expanding human population not to mention droughts and floods attributable to climate change. The focus in the media on privatised water companies paying multimillion pound salaries and bonuses to its senior directors and CEO’s not to mention its shareholders which in the main consist of overseas investors has meant that privatised water companies have come under fire particularly when balanced with reports of a decrease in investment in infrastructure.  

Although Water UK reported in 2019 that since privatisation the water industry had spent around £150 billion improving pipes, pumping stations, sewer and treatment centres.  In contrast the FT reported that water and sewage companies had reduced investment in critical infrastructure by up to a fifth in the 30 years since privatisation with the decline in investment most extreme in wastewater and sewage networks according to data released by OFWAT to Windrush Against Sewage Pollution campaign group. This is despite a 31 per cent real terms increase in water bills since the 1990’s.  

Add in that a recent report highlighted that since 2016 water companies have pumped raw sewage into our rivers and seas for more than 9 million hours the equivalent of 1076 years you can understand why the water industry is under fire. Whilst water companies in England and Wales are allowed in some circumstances to discharge raw sewage via ‘combined sewer overflows’ (CSO’s) investigations by Windrush Against Sewage and a recent investigation undertaken by Dispatches revealed  water companies are discharging sewage from unpermitted pipes making a number of these discharges illegal.

A call for a change in company structure 

There have been cries from campaigners such as Fergal Sharkey and UNISON for the water industry to be re-nationalised in the fight to stop the pollution of waterways and seas with much criticism that shareholders, CEO’s and senior managers should not profit financially from what is as an essential commodity on which all life on earth depends and that more investment is required to tackle the many challenges and pressures on our water environment.

Is a not-for-profit organisation better for the water environment 

But is it actually better for the water environment and people if there was to be a renationalisation of our water industries or for example water companies to become a not-for-profit organisation such as Dwr Cymru Welsh Water.  

This article takes a very brief look at a not-for-profit organisation such as Welsh Water and whether as such the water environment and people would benefit more if all water companies had to operate from this model.  However clearly a more detailed analysis would need to be undertaken to truly identify the real benefits and disadvantages of both models.
 

Dwr Cymru Welsh water

Welsh Water is owned by Glas Cymru which is a single purpose company that was formed in 2001 to own, finance and manage Welsh Water.  It is limited by guarantee and because of this has no shareholders and because it has no shareholders any financial surpluses are reinvested into Welsh Water.  It is reported that over the past 21 years more than £440 million that would have been distributed to shareholders if Welsh Water had remained a listed company has allowed higher levels of investment.  It serves a population of 3 million people supplying water to a large area of Wales.

In a promising note in 2021 Welsh Water secured the top 4-star rating after meeting or exceeding targets for its environmental performance.  The assessment known as the Environmental Performance Assessment (EPA) is undertaken by Natural Resources Wales and the Environment Agency.  In 2022 it became the top-rated water company for customer service following UK wide customer research.

However, whilst Welsh Water has been awarded these accolades this must be balanced against a background of criticism that it has faced, some of which are very similar in nature to that of the privatised water companies.

A report by the Senedd’s Climate Change Committee highlighted that Welsh Water was discharging untreated sewage via storm overflow drains just as private companies do when their waste water treatment works are so called overwhelmed with water following heavy rain fall.  

The committee noted that in 2020 there were over 105,000 incidents of untreated sewage being dumped into rivers in Wales. The Committee also noted with concern how frequent these discharges were but how much they have increased in recent years. 
 
Llyr Gruffydd MS, Chair of the Climate Change, Environment, and Infrastructure Committee, said; “Storm overflows should operate infrequently and in exceptional weather conditions - but that is not what’s happening. Instead, we’re seeing the numbers of incidents rising sharply with repeated reports of sewage in our rivers.

In another blow for Welsh Water’s environmental credentials in April, the BBC's Panorama highlighted Welsh Water as one of the worst offenders among UK water companies for dumping untreated sewage.  

Welsh Water’s response to criticism has been to say that “The network we have inherited is a combined one, it takes rainfall from roads, yards, and roofs as well as sewage from homes and businesses. It therefore includes combined storm overflows (CSOs) which play an essential role in stopping sewage from backing up into customers’ properties during periods of heavy rain. They usually release storm waters into rivers, or the sea and their operation is highly regulated and closely monitored by our regulator Natural Resources Wales”. “Whilst our CSOs are mainly operating as designed and permitted, we recognise that with environmental legislation tightening and customer expectations changing, more needs to be done”

Natural Resources Wales who are the main regulator for Welsh Water in July 2022 called for all water companies it regulates to step up and take action after its annual environmental performance reports for water companies highlighted an increase in pollution incidents and a decrease in compliance with environmental permits for sewage discharges.  It also reported deterioration in the performance of Welsh Water which had led to it being downgraded from a four-star industry leading company in 2021 to a three star (good company) in 2022.

Conclusion

On the face of it Welsh Water by its actions has also added to the pollution of our rivers through discharges of untreated raw sewage and therefore on that basis it could be said that the not-for-profit model does not benefit our water environment any more than a privatised system.  

However, there are many challenges that must be addressed in the way that we manage our water, not only from a water industry perspective (although not discussed in this article) but also in the way we manage our use of land, the growing intensification of the agricultural industry and climate change.

The same challenges arise both to the private sector of the water industry as well as a not-for-profit organisation.

Investment by the water industry is clearly a significant factor for the regulators and also NGO’s and the public with calls for more to be done by the water industry in order to be able to deal with these challenges.

With data produced by the University of Greenwich showing that nine privatised water and sewage companies in England alone have paid out a total of £18.9 billion in dividends since 2010 (an annual average of £1.6 billion) it certainly raises the question that surely this money would be better invested back into the water companies than lining the pockets of investors?

However, on a cautionary note a detailed analysis (outside the remit of this article) would need to be undertaken of the ratio of investment by privatised companies and not for profit organisations to draw a more accurate conclusion.