The operations of Britain’s water companies are a disgrace that should not, cannot, be ignored much longer. When it rains hard, these privatized companies dump raw sewage into our rivers and, when/if they’re spotted doing it, happily accept the fines as a business expense. When it’s not raining hard, they lobby for hosepipe bans blaming the amount of water being lost leaking out of the pipeline infrastructure they own and operate.
The interests of the public seem not to be a priority; developing or even maintaining an adequate infrastructure even less so.
There is no justification or need for this to persist. Plenty of people now simply want water company managements prosecuted and jailed for their environmental crimes. Dyed-in-the-wool free marketeers fear - correctly - that water-company scandals undermine the broader case for privatization.
The problems associated with nationalization, though, have not disappeared. Quite apart from funding the buy-out, they include long-term underinvestment, strategically conflicted managements, and - let’s face it - a likely proliferation of HR-style non-jobs.
But it is not impossible to imagine that even now we could regulate these companies so that they cleave to a socially/environmentally useful purpose. Strangely, one place to start is by asking: ‘How does Hong Kong keep the lights on?’
Hong Kong’s electricity is supplied by two regional monopolies, which, if they behaved like UK water utilities, would be diabolically polluting, would inflict regular black-or-brownouts, and would post you ever-escalating electricity bills.
This dystopian outcome is avoided because these private listed companies are subject to a Scheme of Control which governs their performance, including financial performance, and which lays out in detail how the government can and will conduct its examination of operations and outcomes. The Scheme of Control governing China Light & Power (CLP) can be found here. It’s a complicated agreement, covered here in nine pages.
However, at its core is this financial principle: CLP is allowed to earn a return of 8% on its net fixed assets. If it earns more than that, the excess is returned to a tariff stabilization fund which can be used to cut prices.
This is surely the way we should be regulating private water companies. It is attractive because it embodies both carrots and sticks:
Carrot: if water companies want to raise their earnings, the one sure way to do it is to build the infrastructure Britain needs: reservoirs, pumping stations, sewage works, pipelines.
Stick: poor performance, including the need to pump raw sewage into rivers, water-shortages owing to lack of reservoir capacity or leakages from its pipe system indicates that fixed assets are being put under unacceptable stress. To reflect that stress, they must therefore be depreciated at an accelerated rate. In other words, lousy operating performance would automatically mean lower profits.
Britain’s water infrastructure would be built as a priority, if only to keep shareholders happy.
Impossible to achieve? Not at all. Show me a capitalist who’s going to cry ‘socialist expropriation’ if we follow Hong Kong’s model?
Nor is compulsion likely to be too difficult: the water companies must surely know they have made themselves so odious to the public that they can no longer rely on political protection.
They should be invited to resign their licences and re-apply for them under the new Schemes of Control. Point out that it might represent their chance for re-admission to public acceptability. If they don’t wish to participate, they should be invited to contemplate the alternative of governments of all colours making political and financial capital from severely-upgraded environmental policing coupled with radically-revised fines for non-compliance.