WWT ROUND TABLE 2009
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maintained, regardless of the flow rates? I Martin Hurst How we see it is fairly well
“They thought the
was just wondering whether those of you known and it is not massively different
who have been in the drought situation from what everyone has said. We are in
environmental stuff was
have seen that happen. danger of under-estimating the scale of the
challenge, not just because of the amount the water industry being
John Cuthbert Again, this is where of water that will be available, but because
metering – which is an important part of the of how difficult it is to do some of the
greedy monopolists”
equation – undoubtedly comes into play. things we need to do.
Our business is much more substantially We are both blessed and cursed by the companies, the short-run marginal cost
metered in the South-east because it is Victorian legacy. We still have one pipe arguments are to produce more water rather
more logical to invest in metering there than coming into the house that takes extremely than less.
in the North-east. The customers who expensive and carbon intensive, high The long-run marginal cost is better but
respond to a request to reduce quality drinking water, for use on gardens at the margin you do not pay the full
consumption to get through a difficult patch, or flushing down toilets. We have one pipe environmental cost for water.
which is where we were a couple of years coming out of the house which takes quite Something we have done very recently –
ago, actually save in terms of what they pay a large amount of relatively clean water, in fact, yesterday, we launched our
for their water, as well as, hopefully, having a which could equally well be deposited consultation on time-limiting protection
feelgood factor from the fact that they are down the toilet or in the garden, and then licences. This starts to give you some of the
actually helping to get through a particularly treats it to very high standards, producing options to get better marginal costing for the
difficult situation. There is a financial benefit. even more carbon at the end of it. water use for companies. To a certain extent,
The legacy we have is not one that is water companies are not like other
Bob Baty Just before we get into the detail, I guaranteed to help us to use our water companies because they have far more of
really wanted an overview of the resources most effectively, if I may put it that a genuine public service ethos than
government’s position, and Ofwat’s position way. We also have a housing stock that is almost any other company I know – it is
at this stage. We can then go into a little just about the oldest, on balance, in Europe. fantastic. Even so, however, they respond
more of the detail, but I do not want to miss We do not have the advantage of Berlin to incentives.
out the overview of how the government where the housing stock has benefited over There were very good incentives for
and Ofwat sees this. the long-term because, having flattened the financial engineering and they are very good
rest of the housing stock in Berlin, they did at it. There are many fewer incentives for
at least have the opportunity to rebuild it to water savings and it is quite understandable
more modern standards. that even a water company that sees itself
as a public service organisation, which they
John Cuthbert And, of course, they had a do, will under-invest in water saving, if that
new water network to go with it. actually impacts adversely on their bottom
line to do so.
Martin Hurst Absolutely. We have a pretty The challenge for the water companies is
hefty challenge in terms of the infrastructure to find a way of getting the right marginal
that we have. On top of that, we also have a cost signals to them, without getting the
system of licences for water abstraction that average cost increasing and hitting
are almost literally antediluvian. consumers. There are ways that you might
There is perhaps over-emphasis at the be able to do that and we would have to
moment in this discussion so far on explore that in the context of time limiting,
behaviour change – free behaviour change, and so on. At the moment, however,
if you want. I am not saying that the relative to any economically literate set of
behaviour change is not very important but, price signals, we have very weak price
as an economist, you also have to look at signals indeed at the margin – and you
the price signals. There are two sets of price have to distinguish the marginal costs and
signals. average costs, because there is a social
argument about average cost that the
Bob Baty Did you say that there was too government feels very strongly.
much reliance on trying to achieve One of the debates we are starting to
behaviour change? have about metering and, hopefully, about
extraction – some of the things that Martin
Martin Hurst No, behaviour change is great Kay was talking about, about innovation
and I do not under-estimate it at all. incentives for industry – is how we get the
However, it can only take you so far. As an price signals to work. Intellectually, we all
economist, I have to look to price signals. know we need to do that. When I came into
Two-thirds of the population have zero this job, one of the most extraordinary
marginal cost for water, which to an things about water is that nobody disagrees,
economist is a touch archaic. Also, basically, about the analysis and about the
Rob Ashley: Focus group inasmuch as there are incentives for water trunking. There is an element of its being
10 Round Table June 2009