Select Committee on Constitution Minutes of Evidence


Examination of Witness (Questions 562-579)

WEDNESDAY 11 JUNE 2003

MR PHILIP FLETCHER, OFWAT

Chairman

  562. Mr Fletcher, good morning. We are very grateful to you for being with us at the start of what is going to be quite a lengthy day's proceedings. We are grateful to you both for being here and also for the paper you put in in advance. Before we get under way with questions, could I invite you first to identify yourself for the record and then to make any opening comments.
  (Mr Fletcher) Thank you, Chairman. I am Philip Fletcher, Director General of Water Services. I am accompanied by Ingrid Olsen, who is my parliamentary and publication manager and adviser. I do not want to say a lot in introduction, other than to welcome the fact that this Committee is examining this very important subject today. I have studied with interest quite a lot of what has already been said and attended on a couple of occasions where you, Mr Chairman, were entirely speculatively talking about some of the issues. I welcome the opportunity.

  563. Thank you. I will start with the first question and start in reverse by looking at your final paragraph, paragraph 28, because there you said: "Statute and guidance should clearly establish which office is responsible for each aspect of the regulatory system to minimise the scope for duplication and confusion." I was quite interested in the use of the word "should". Is the implication that, as presently constituted, there is scope for duplication and confusion and that therefore there should be greater clarity in the relationships?

   (Mr Fletcher) I think certainly that there is always the possibility of some confusion between the various parties involved in the area. Therefore, it is tremendously important that all of us who are involved—in my case myself as the economic regulator, clearly Government with Elliot Morley as Minister for Water within that department is in a key role, Margaret Beckett as Secretary of State, the Welsh Assembly Government in respect of my accountability for Welsh Water issues, and the Environment Agency and the Drinking Water Inspectorate and English Nature as environmental regulators—have their equivalent parts to play. If between us we are clear about where our respective roles lie, then I think we have a very effective system with proper clarification of roles. I welcome the fact, for example, that the Government—Elliot Morley—in a book published only last week was saying: It is the regulator's job to decide the price levels—Ofwat's and nobody else's. That is nice and clear but he goes on to say, and I absolutely agree with him: but we all have important roles to play. The Government for example, is absolutely key in deciding a large part of the scale of the capital programme which water companies have been carrying out ever since 1989, since privatisation, much of it to fulfil UK obligations under European Directives.

  564. Do you think the existing framework, where those roles are clearly stipulated, are adequate for that purpose?

   (Mr Fletcher) I think it would be very hard to clarify it very much more, say, in law than it is already or will be further clarified once the Water Bill currently in front of your Lordships' House passes into law. These are not things where you can precisely specify everything; in fact, I have urged that we should not try to specify everything. The system needs to be flexible enough to cope with the fact that life moves on. The companies are already, in many respects, not just ownership but structure, looking significantly different from where they were in 1989 on privatisation, for example.

  565. So the onus therefore is on the people holding the respective responsibilities?

   (Mr Fletcher) As I would see it, yes. This is not a purely mechanistic job. That is not to say that we are not, as accountable regulator, working very firmly within a framework of law, which I would guess all the economic regulators appearing in front of you will say is our lynchpin, our touchstone, and absolutely key to the whole business of doing our jobs.

Baroness Gould of Potternewton

  566. We have just been discussing the respective roles in one aspect. Could I ask about a completely different aspect? This relates to your paragraphs 22 and so on about the accountability to the public. I particularly want to ask about how you see your relationship with WaterVoice. Obviously we have seen them and we have their side of how the operations work. I would be interested if you would give your version of how you see yourselves working with WaterVoice. In paragraph 23 you make the point that if they cannot deal with complaints, then you take that over. I wonder whether you could give examples of when that might happen. Third, if I may, what if WaterVoice and yourselves actually have a disagreement, and maybe they are saying you are not doing your job sufficiently well: what resource have they got in order to make you do your job well?

   (Mr Fletcher) The Committee will be aware that at the moment I am one, I think perhaps the last, of the regulators as set up in privatisation who combines within his office both the economic regulator job pure and simple and the customer representation job, though the existing legislation gives a framework for Customer Service Committees established at regional level. I therefore am responsible for the pay and rations of WaterVoice. I am responsible for the appointment of both the Chairman of the WaterVoice Council and all the chairs of committees, a function again which I take seriously and try to carry out in accordance with all good practice around public appointments. That is not a satisfactory position long term. I welcome the proposition in the Water Bill to establish a separate consumer council for water, which hopefully will still be called WaterVoice, just to signal clearly to the public that there are two roles here. The economic regulator of course is there to consider very carefully and defend the interests of customers but not above all else; it is a job of balancing various issues. The customer representative body, WaterVoice, is there more simply to represent customers. Having said that, I think there are some advantages, which I hope very much we shall not lose in the new regime. First of all, in terms of efficient operation, the whole of Ofwat, including WaterVoice, which accounts for roughly 25 per cent of our expenditure, has made a call on water customers through water companies of £12.5 million for the current year. If you compare that with some other sectors, that is quite modest. That is not to say that there is not always scope always for more efficiency, but I believe it is efficient. I believe, for example, it is effective in terms of legal advice, which is offered by my legal advisers separately to WaterVoice when they need it, rather than needing to set up twin legal representations. Secondly, more importantly, a great deal of the role of WaterVoice and of Ofwat overlaps. I rely very much on WaterVoice committees to do a lot of solid groundwork with the companies, for example, on complaints. The WaterVoice committees, as their representatives will have told you, have as one of their functions the business of actually going and visiting the customer departments of the companies and looking at what they are doing, inspecting the books and giving views on whether they are handling complaints properly, whether over the phone or in writing. That is something which I need to take into account as part of my qualitative assessment of how well the companies are performing their job in relation to their customers. There are a lot of other issues like, for example, customer survey work, where we and WaterVoice tend to commission surveys together rather than waving little pieces of paper saying, "We asked these questions and came up with this set of answers. They asked a different set and came up with a different set of answers". In that case, we are combining with a whole lot of other stakeholders as well, Government and the companies amongst others. I believe we shall get a far better product from a pool of resources and a lot of really hard debate round a table on what questions should be asked to get a clearer picture than each of us going away and doing our own little thing. You raised the business of the complaints that come on to me. My formal role is where the WaterVoice committee concerned has asked a company to take such and such action in relation to a particular complaint and where the committee, for example, has found some blame at least resides with the company and that the company should do something in response, as does happen quite often. If they are unable to resolve that issue with the company and if they feel very strongly that the company is wrong, they will send it on to me and I will have another go. I do not have a power to compel a company to take a particular action in response to a complaint, but the sort of moral suasion which a regulator can bring to bear is sometimes quite powerful. Where WaterVoice disagrees with me, as they are free to do and which they do really quite frequently, the memorandum of understanding between us really simply says: please, when we are going to disagree, let us first have talked about the issues to define exactly where the problem is and to define areas where we do agree. Then, when we have resolved that, we go out to the court of public opinion and say: the regulator is making a mess in this, that or the other way and that is your right; I have appointed you, go out and do it

  567. Could I pick up the point about the future? Could you elaborate a little on the future? Under the Bill, when you have separate consumer body, how will you see then your relationships? For instance, would you still expect to have a memorandum of understanding between the two bodies and would you still be able to take on the role of dealing with the more difficult problems that you have now? How do you see your relationship in the future?

   (Mr Fletcher) I would hope that the constructive working relationship that exists at the moment would be capable of being carried on into the new regime. I do not think there is any benefit for water customers or the public in having a regulator and the customer representative body forever at each other's throats, as long as neither is clearly on top of the other. Yes, there will be a memorandum of understanding; yes, there will be some fairly clearly defined principles underlying the whole thing. I would hope that they will build it very much on what we have been establishing between us and that there will be some continuity, but that of course will be very much a matter for Ministers as to who they choose to appoint, assuming that the Bill passes in roughly its present form into law.

Chairman

  568. Just as a supplementary, you mentioned, if you like, separating out the role as an economic regulator and the consumer interest, going on then to the consumer body. Quite clearly, there are arguments for that. Is there not a point that the consumer might miss out solely in the sense that the regulator of course is the decision-taker, whereas the consumer body does not have responsibility for taking decisions? Should we be concerned about that?

   (Mr Fletcher) I think, if you were to set up a decision-taking body, it would alter the nature of the customer representative body. I am not saying at all that they take a biased view but I think it is important that customers should feel they have got somebody who is just there for them. That is not the same as sitting in some forum, whether it is actually quasi judicial or simply in an administrative capacity, and saying, "I have to weigh this and that and be fair to both sides, and my conclusion is the other".

Lord MacGregor of Pulham Market

  569. I have been impressed by one particular aspect of Ofwat's work, and it is this. You have outlined in your memorandum that there has been £50 billion of investment since 1989. You also outline the tremendous improvements in quality of the water and everything else that has resulted from that. It would have been very easy to take a view that, in order to protect the customer and to put the pressure on the industry, you would not have allowed any increase in charges, but you have made it clear in your memorandum. Those of us who have been Members of Parliament well recall some of those periods when water charges went up quite substantially, I think 20 per cent in real terms since privatisation. How did you and your predecessor strike that balance? Are there any lessons for other regulators? What I have in mind in particular is that you resisted some of the pressure not to increase charges and we are now reaping the benefit.

   (Mr Fletcher) As you have said, Lord MacGregor, we are now going back partly into my predecessor's time. I know that Sir Ian Byatt has given evidence to you. The job, as I see it, first of all, as I have said already, is to carry out my statutory functions. My primary statutory duty as at present phrased—it will change under the Water Bill—is to enable the companies to carry out their functions and to finance them. Over the last 12 or 13 years, it has become very clear that both Ian Byatt and I mean by that, first of all, not a safety net for any company which perhaps might get into trouble, and one or two water companies have got into financial trouble, at least through their non-regulated businesses in the succeeding 13 or 14 years; it is to enable an efficient company to carry out its functions and to finance them, which is an absolutely crucial but I think universally accepted—and not just in relation to water but in relation to other sectors as well—feature of our UK or, in my case England and Wales, regime. I seek to achieve the balance because I am also very conscious of the interests of customers who will be informed by the water board in its key statutory role , and that is already there. I think it is already accepted that the key part of the job is to ensure that the customers of monopoly bodies, who have no choice about where to take their business, and their prospects are not going to change in the short-term anyway in the water sector, should have an economic regulator there to ensure that bills, first of all, are as high as they must be—that is the finance functions bit—but, second, no higher than they need to be. That is what I am starting to develop as my mantra for the coming periodic review. If I finish up with some general acceptance that, yes, I have given the companies enough, but no more than enough and not a huge extra cushion, to the windfall benefit of shareholders, then that would be a satisfactory outcome. Achieving that is the art, if you like, of the economic regulator.

  570. That means you obviously take a view on the capital expenditure requirements and needs. That is obviously part of the assessment of the company's financing.

   (Mr Fletcher) Almost uniquely, in this particular sector, Ministers have—and I am talking here about  both DEFRA and the Welsh Assembly Government—an absolutely key role in setting what we tend to call the quality programme. That is particularly the environmental elements, much of it driven by those European Directives. They are taking advice from me, certainly, but also from the environmental regulators. I actually think in this sector that is entirely appropriate. It is not a confusion.

  571. I wanted to ask you, and you have just raised the question of the environmental agencies, if you could explain a little more what your relationships with them are and the impact on the decisions you take.

   (Mr Fletcher) The Environment Agency, and the Drinking Water Inspector though based within the DEFRA department has a very similar function on drinking water, has its own statutory remits; it is a different sort of body, a non-departmental public body, rather than a separate government department, but nonetheless with statutory roles to carry out and is itself an environmental regulator with quasi judicial functions. I think it is no great secret that the relationship was very difficult in the period leading up to the last review. It surfaced in terms of some findings from parliamentary committees at the other place that Ofwat was anti-green. My predecessor, quite rightly, was very insistent on the point that, however he needed to carry out our obligations, it is still important that very large capital projects should be subject to proper value-for-money disciplines, which you would normally expect to be proper cost-benefit analyses. We are talking sometimes of hundreds of billions of pounds. That tension arguably was not entirely helpful. There is inherently a tension which will be there and I think that is healthy, but it needs to be constrained within a recognition that we are, all of us, trying to do a difficult job where we need to work with each other to carry it through properly. The Environment Agency, Baroness Young Chief Executive, John Harman as Chairman, and our staff are very much seeking to ensure that that is the way the relationship works throughout this review.

Lord Holme of Cheltenham

  572. I have a two-part question, if I may, Mr Fletcher. The first part is that I was very struck by the phrase in paragraph 7 on the second page of your evidence where you define Ofwat as a "non-ministerial government department". This is, of course, of particular interest to this Committee because one of the reasons the Constitution Committee is looking at this question is to try and place the burgeoning business of regulation in some sort of constitutional context and see what the significance is. There are elements of your function which are quasi judicial and there are respects in which, as you say, you are a creature of statute and directly therefore accountable to Parliament which passes the legislation. Also, to say in terms that you are a department of government seems to place you firmly in the box called executive; you are part of the executive. I have a question which relates to Lord MacGregor's question. I wonder if you could spell that out because I think you are the first regulator who has said in such a direct way simultaneously in the first paragraph "I am independent" and then in paragraph 7 that you are part of government?

   (Mr Fletcher) The formal position is that the economic regulators take a number of different forms, but the form of a non-ministerial government department is probably the most common. Ofcom under the Bill will actually be somewhat different but Ofgem, for example, has the same status. Thus, every other member of Ofwat but me is a civil servant. Ingrid Olsen is a civil servant. Her terms and conditions are constrained by the normal rules of public service; they are validated by the Cabinet Office in terms of Civil Service rules. All the appointments follow the known procedures. I would accept your corollary that therefore I am part of the executive. I would see myself as part of the executive but not in any party political sense. I have been given a job to do under statute passed by Parliament. I have  been deliberately given distance from the government of the day to ensure that the decisions I take in my statutory role are not coloured by what might be called the party political agenda, but I am free to take them and welcome the way in which successive governments have recognised this independence. I believe it strengthens the executive as a whole. If I can go on, I think the fact that we are a government department is also admirable because it means we are not cut off when Government, for example in developing the competition regime currently in front of you in the Water Bill, was able to draw on the expertise of Ofwat staff in competition issues entirely in confidence to supplement their own expertise. I think if we were entirely cut off from that sort of confidential advice, Government would rather waste the money of taxpayers in needing to set up its own expert departments. If you were to ask my own regulator colleagues, you would find them generally recognising that sort of role.

  573. I would not say you are unique, because I do not know whether you are, but Ofwat is staffed entirely by civil servants, and that is not the case necessarily with other regulators?

   (Mr Fletcher) Not by any means all of them, certainly.

  574. I am very interested in what you said and I would like to take time to absorb it. It brings me on to a question which relates to what Lord MacGregor was asking, which is this question about you as economic regulator. I think you set out pretty clearly the hierarchy of the objectives where your primary duty is to see that water companies are able to carry out their jobs and then to see, from a consumer point of view, that prices are no higher than they should be and then, if you like, quality issues. What is very interesting is that of course you have to secure public goods in respect of some environmental goods which are financed out of capital, and that is the role of mediation that you are performing. That is particularly true in the water sector, so that with issues, for instance like beaches and canals, sewage on the beaches of the South-West, which I know has been a perennial question, or the quality of the discharges into canals and so on, you are aiming to see that the investment going into the industry is sufficient to secure public goods and not just for consumer interest and the capital functioning of the water companies. I still find it very difficult to understand quite how you take on some of these roles, which historically were the roles of government because they are public goods and nobody else could look after them, and how you are able to shed the pricing and investment decisions of the industry for the public good. I think we can assume that for instance clean drinking water is a core function rather than a public good. People do not want dirty drinking water in their houses and that is part of protecting the customers' interests. Going out beyond the customers' interest to public environmental good, how do you see your role in mediating these factors to come to the right decision?

   (Mr Fletcher) Perhaps I can give examples from each. To take drinking water first, there the expert is not Ofwat, it is Jeni Colbourne, the Chief Drinking Water Inspector. It is effectively she who advises Ministers on what will need to be included in the programme from 2005 onwards, and has advised hitherto. The key issue is on lead, for example. Potentially there are huge costs around the replacement of lead pipes. Hitherto over the last few years the Drinking Water Inspector has said, "There may be other ways of skinning this cat, at least for the moment, in terms of ortho phosphate dosing, the chemical dose, to ensure that the lead sticks in pipes rather than coming through in our drinking water". Nonetheless, roughly one in one hundred tests at the tap failed at privatisation; it is now one in seven hundred tests that fail at the tap. So there has been a noticeable and very marked improvement, a fraction of a per cent, towards one hundred per cent. Similarly on environmental issues, though there it tends to be the Environment Agency which is the expert, and the Environment Agency closely advises Government on what is needed both for environmental good in its own right and then specifically what we are bound to achieve under the Directives. Ministers will tell me in January/February next year what specifically the companies need to do to achieve the next tranche from 2005 to 2010. I will simply take that on board. That will be after a lot of private debate between Ofwat and the various other stakeholders, including the companies. It will be after all the stakeholders have taken very careful account of the draft business plans which the companies are, at my instance, all busily preparing and will produce for me in August this year. It is a rather long and complex process but at the end of it—and this is where the delivery by the private sector of public goods, if it is really working well, has a lot to offer—is in the companies' hands. I set them a programme in broad terms. Sometimes they will find better ways of actually achieving an objective than perhaps hitherto, which is good for them and an efficiency gain which will lead to a saving, which they will be able to pass to the shareholders. I or my successor will claw that back subsequently for customers in five years' time. This is a sort of potentially benign and usually benign cycle of government/regulators setting what needs to be done. Private sector companies are entirely independent. From my point of view, that is another immense simplification and advantage in the water sector; the taxpayer is not directly involved. The money is raised on the markets and better and more efficient ways are found to achieve it, making a gain which raises the level of the industry as a whole. You will probably have seen that the Scottish Regulator, my opposite number, who works under a very different regime, has had to say to Scottish customers, "I am afraid your bills are some 60 per cent more than they would have been if Scottish Water's predecessors had been operating at the same levels of efficiency as English and Welsh companies now achieve". Whether we can keep it going will be a key issue for this coming review because the companies have now seen their balance sheets altered very significantly since privatisation. They were privatised without debt and some of them are now fairly heavily loaded with debt, but that takes you into some of the more interesting issues that I have to think about.

  575. If I can bring my two questions together, and I think that has been very interesting, let me hypothesise that we have the government department or its agencies, in response to public demand, raising the standard and saying, "99.99 per cent of water must be potable; all beaches must be blue flagged within three years" and so on, and they raise the standards in a way which you know would either require very dramatic price increases to the consumer or an inadequate rate of return to the investors in the water industry. There you are in your government department; what can you do about it?

   (Mr Fletcher) The last point is a given. I work out the cost of capital, the adequate rate of return to the company. Coming back to my statutory duty, I must enable them to finance their functions. This of course again is not a precise science, but it is absolutely key given for the job that Parliament has given me. What I do in those circumstances is have a discussion, which will probably usually be in private to start with but will also find its reflection in public statements for me and others involved in the system. This is not a million miles from the position that we do find ourselves in looking ahead, which is to say that we are not going to see the sort of win-win that was possible in 1999 where we both had a very large capital programme and cuts in bills for customers which were made possible by the efficiency gains which the companies had been achieving in the later Nineties. We are going to see, I fear, price increases. There is a real question about how big they will be. I shall keep doing my job of looking for efficiency gains but I will make very sure that all parties—customer representatives, companies themselves, the City, the  Government, the environmental groups and regulators—are aware of these issues as they have to think about what is necessary for inclusion in the capital programme going forward; What has to be done? How well it can be done? How efficiently it can be done? Whether it all needs to be done in the next five years or whether some can appear in the following five years, and so on. Would it be helpful to give an example, just one case very briefly? At the last review, one of the requirements on the Wessex Water Company was to ensure that the chalk streams, which are not only valuable for fishing but are hugely ecologically important, do not dry up in the middle of the summer as often as they are doing. That required Wessex to reduce its abstraction. The initial thought on that was that this would cost us well over £100 million because we shall have to develop new sources. This was one area where Ofwat said to everybody, "Can we not think laterally about this?" That particular scheme was put in a pending category, rather than being specifically required at the last review. Those outcomes are to be achieved in this current five-year period. The outcome, I am very pleased to say, after a lot of co-operation between all the parties, is at least for the moment that we are trying out the passage of water through the Sharpness Canal near Gloucester, through the territory of Bristol Water Company, through a bulk supply to Wessex as an alterative to the development of wholly new sources at a cost of 3/6d! I exaggerate but only a little. That will be properly tested to see whether it fully achieves the environmental benefits before there is a question of going on to what still might be a potentially very expensive scheme—a win-win all round.

Lord Lang of Monkton

  576. I really want to address the issue which Lord Holme and Lord MacGregor have already explored with you, Mr Fletcher, but I would still like to pursue it a little bit. You said in answer to Lord MacGregor, as you also said in paragraph 12 of your paper, that in exercising your powers over the price rises, you have had to make judgments about what revenue the companies need to collect to carry out those functions properly and to finance them. You repeat that comment but you also say, "The resulting price limits must allow the companies to secure a reasonable rate of return on their capital". In your oral answer you referred to an inadequate rate of return. What I am interested in is not just the criteria that you applied for that, and you describe some of them, but also the underlying philosophy that you bring to bear in exercising your judgment, as opposed to simply applying a statutory , everyday approach.

   (Mr Fletcher) If apply it to history first, I think everybody involved, from the regulator to the companies, to the stakeholders, to the customers, was surprised at the potential for efficiency gains in the years immediately after privatisation. It was during those years that the companies made very high rates of return—12 per cent and more. The rate of return has come down for most companies to something much closer to 6 per cent. There is a fierce debate, in which I involve myself publicly as well as privately, on just what is needed as an adequate rate of return. One of the issues that is concerning me is the extent to which some companies are either becoming wholly debt-financed, as in the case of Welsh Water a company limited by guarantee, or very highly leveraged with very heavy debt finance, which carries with it potentially some long-term risks about the stability, brittleness perhaps, of such companies. We are talking, as you know, about an industry which has a very long-term future. Therefore, it is very important that the structures that go forward are robust, but at the same time I do not seek to constrain the industry and the City from developing efficient means of financing going forward. This is a dialogue which has not yet reached a full conclusion but where I do see it is in my interest to ensure that customers are properly protected. Where a company, as with AWG responsible for Anglian Water, decides that it is in its interests to go for a very high level of debt, I have sought, and they have agreed, licensed amendments designed to offer more protection to customers, to create an even stronger ring-fence, if you like, around the regulated company, which has already served the state well, I think; for example, in Wessex Water's case in enabling it to continue to provide services whilst its owner, indirectly Enron, went bust.

  577. It is obviously important to protect the consumer interest. It is important to fulfil the Government's obligations in discussing the water industry. It is not a zero sum gain; there is still the opportunity for water companies to prosper and be more successful than each other by the exercise of their commercial skills. I am concerned as to whether you view your job as being to provide a safety net and the fulfilment of those specific obligations which you have or to play God and put a lid on the whole thing and stop any company justifying privatisation in the first place.

   (Mr Fletcher) Neither, and it is not to be the chief cheerleader. Probably the companies would say it is to wield a whip. I would not see myself in those terms! It is very much in this largely still monopoly-based industry, for all sorts of good reasons, based for many of them in geography and hydrology, to encourage the best to perform even better and thereby to set the yardsticks which give me the confidence that I am not being over-demanding in what I am requiring of the companies. Ofwat, particularly under Ian Byatt, to whom I would like to pay tribute, developed a whole series of annual reports. I will not bore you with all of them but they are published reports which enable anyone who is interested to see how their company is doing against various measures of efficiency and performance. How well they are looking after their infrastructure, how well they are serving customers, how well they are doing within their legal function. The most efficient companies gain because they are beating my targets and that enables them to reward their stakeholders, shareholders or whoever, and their managers entirely appropriately for their success. It gives me the confidence, with 22 companies out there, big and small, to keep pushing because I must not push to the point where I am actually causing efficient sticks to bend unacceptably much. It is one of the advantages of water that I am not looking at one giant monopoly with a regulator in Birmingham saying, "I think you can do better" and the regulator company saying, "You cannot do my job and I know you cannot". I am just saying, "I know you can do better because your confreres, your colleagues, your rivals, are doing better".

Lord Acton

  578. Could I follow up on what Baroness Gould was asking about Ofwat and WaterVoice? In paragraph 22 you say that WaterVoice seeks independence, sometimes critically, from the regulator. In answer to Baroness Gould, I understood, paraphrasing it, that you were saying that where the two simply, with the best will in the world, could not agree, then they went to the court of public opinion. I think that is how you put it. Can you give an example or examples of how this works? You do not agree, and I have understood that. I do not quite understand how you go to the court of public opinion. Above all, I would like to know cases where the court of public opinion said that WaterVoice is right, WaterVoice wins, and whether WaterVoice then does win?

   (Mr Fletcher) Perhaps I could give another example, drawn from WaterVoice's evidence to you, where we disagreed? This was the business of extending the licences of the water companies. I can go into when I thought it was appropriate that this should happen. This was to give more stability and confidence that government was not about to remove the licences from these very long-term businesses. It does not, incidentally, buy any ability to sit back in their comfortable chairs and take it easy. I will ensure that that is not part of the regime. WaterVoice was concerned about two things. First of all, they thought that my prior consultation on this issue had been too brief and they talked to me, and I actually accepted that. We allowed some more time. Secondly, they said, "In this case, it is a put-up job because you, a regulator, have gone to Government", as I had in private before making this exception and just checked that the Government was not going to put a veto, as they could have done, in the place of what did represent, though it is done through the licence, a significant change on the original intentions of privatisation: 25 years up to a 10-year notice period has been changed into a 25-year notice period. I still believe that there I was right. The last thing that would have helped the customers would have been to have the regulator consulting on a change and for the Government to come along and veto it. Causing considerable disruption in the City, when the whole point of the exercise was to reassure potential investors that they could not get their investment removed from them at a stroke by the elected government at this or any future date. WaterVoice have held to their view, which is entirely their right, and have made representations to you.

  579. Who have they made representations to?

   (Mr Fletcher) They have laid before you what they think was one of the failings of Ofwat as regulator.


 
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