Water firms profit during hosepipe ban

hosepipe dripping waterHosepipe bans in the southeast are the clearest indication yet that privatisation of British water companies has simply handed billions in profits to greedy shareholders at the expense of poor households.

The average water bill in 1989 was £120. It is now £376. Even allowing for inflation – the way the toothless regulator Ofwat prefers – bills have risen 45% above inflation or £116.
So where's the money gone? Profits. The last available figures on water company profits from Ofwat – and it will no longer be compiling these figures (you'll see why) – shows a staggering combined operating profit of £3.5bn in 2009-10, an increase of 7%. The companies' pre-tax profits jumped from £1.8bn to £2.8bn – or up by 55%.

Total operating expenditure in 2009-10 was £3.7bn. Companies also invested £4.0bn in doing up the network of pipes and sewers, but that was 14.9% less than in 2008-09. Maintenance spend fell by 13% to £2.1bn and expenditure on improvements fell by 16.9% to £1.9bn.

These are the figures from the regulator Ofwat. They are embarrassing. No regulator can be proud to report rising profits by water companies while investment falls and hosepipe bans get introduced. But instead of tackling the issue, Ofwat is simply going to cease reporting how much profit water companies make. It's a disgrace.

Here are the bills average water bill since privatisation using Ofwat's preferred method of making an allowance for inflation.

  • 2012-13 £376
  • 2011-12 £375
  • 2010-11 £375
  • 2009-10 £378
  • 2008-09 £374
  • 2007-08 £370
  • 2006-07 £360
  • 2005-06 £349
  • 2004-05 £324
  • 2003-04 £316
  • 2002-03 £312
  • 2001-02 £312
  • 2000-01 £315
  • 1999-00 £359
  • 1998-99 £355
  • 1997-98 £353
  • 1996-97 £351
  • 1995-96 £345
  • 1994-95 £336
  • 1993-94 £317
  • 1992-93 £300
  • 1991-92 £286
  • 1990-91 £272
  • 1989-90 £260

Now, of course, really they have gone up each year by inflation too. So since privatisation they have actually risen from £120 to £376, a rise of £256 or 213%.

To put that in some sort of context, the average price of a pint of draught beer in 1989 was 96p and is now £2.73. That's 184% more. So, relatively speaking, it's cheaper now to drink beer than water.

Drip, drip drip

Want to hear Ofwat's wet excuses? Here's what a spokesperson told AOL Money:

"It's important to note that since privatisation, our efficiency challenge alone means that bills are £110 lower than they otherwise would have been.

"Water companies have delivered £98bn investment since privatisation. This has helped maintain and improve services, and help deliver safe, reliable supplies to customers. To pick out some key achievements since privatisation:
  • Leakage levels are down a third since mid-90s peak
  • Consumers have access to excellent drinking water, now up there with the best in Europe (99.96% compliance with tough EU standards).
  • At privatisation, we had 12 blue flag beaches – and now have well over a 100, and have salmon in the Mersey.
  • More than 85,000km of water mains replaced or removed

Ofwat also claimed: "Investment means that, when compared to the early 90s, you are:
more than five times as likely to be at risk of unplanned supply interruptions
eight times more likely to be at risk of having your house flooded by sewage
and more than 125 times more likely to be at risk of low pressure

And you'll love this: "When we set price limits for the 2010 – 15 period back in 2009, we challenged companies to make sure they were investing in the right time, in the right place, for the right price. Companies' investment proposals would have seen average bills rise by 10% more than we allowed them.

"And customers are helping pay for the largest ever investment programme across the sector - £22bn by 2015. As well as continuing to deliver safe, reliable supplies, examples of benefits of this investment include:
  • Improve 140 water treatment works and 550 sewage treatment works to maintain and improve the environment and drinking water quality
  • Over 10,000km of water mains being improved or replaced – more than the equivalent of London to Cape Town
  • More than £1bn will be spent on maintaining and improving drinking water quality
  • Investment in cleaning the mains pipe supplies serving more than 1 million people to help reduce discoloured water.
  • Almost 10 million people will benefit from investment to guard against them being without water.
  • Addressing sewer flooding problems for more than 6,300 properties.
  • Maintain or improve more than 3,000km of rivers to meet EU environmental standards.
  • Improve water quality in more than 55 wetlands and bathing waters.
  • More than 100 schemes to work with farmers and landowners. This will help control pollution and reduce costs by better use of land, preventing pollution of drinking water sources requiring costly treatment"

And then of course there's all the wonderful environment benefits that letting water companies make £3.5bn of profit brings.

Ofwat says: "By 2015, the water savings that companies will make by meeting water efficiency targets, reducing leakage, and increasing metering will amount to more than 100 billion litres per year. That is enough water to supply the cities of Liverpool, Bristol and Brighton for more than a year.

"Over the next five years, companies are investing in renewable energy sources generating enough extra electricity to power around 90,000 homes. That's more than enough electricity for all the homes in Portsmouth. This will both help reduce carbon emissions and keep water bills down."

Regulatory powers

The water companies are clearly shaking in their boots at the prospect of Ofwat using its mighty powers to force them to invest.

Ofwat told AOL Money: "Ofwat has taken a range of enforcement action in recent years. Since acquiring powers to fine in 2005, we have fined companies around £75m. And in total companies have paid out more than £500m of their own money following underperformance."

So they spend £3.7bn a year on running costs and they invest £4bn a year in the network. And they make £3.5bn of operating profits and £2.8bn in pre-tax profits. Yet we have hosepipe bans and in the whole time they have been privatised in total water firms have paid out for underperformance just £575m - or 15% of one year's profits.
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