Thursday, 15 December 2016

Plaid AM calls for detailed investigation of Dee Valley Water takeover bid

This is the copy of a letter from Llyr Gruffydd, Plaid Cymru's North Wales AM, and others have sent to the Competition and Market Authority calling for a detailed investigation into the proposed takeover of Dee Valley Water. As the penultimate paragraph emphasises, there is far more at stake here than just one company. The entire future of water services in Wales hangs in the balance:

"Dee Valley Water feel strongly that the takeover by Severn Trent Water should be referred to the Stage 2 Competition and Market Authority review process.

Dee Valley Water is the smallest company in the sector and provides an important performance benchmark for what a small, but relatively high performing company can achieve.  It delivers a high level of customer service and performance and has a proud and well-respected history of supporting its customers.  By being local it is better able to understand the needs of customers and can deliver these services quickly, efficiently and effectively.  It is the best performers in the industry for billing customer service and leakage.  If the merger is allowed to proceed then Ofwat’s ability to regulate and set targets will be impaired by the loss of a top industry performer in these areas.

The water industry is going through a series of significant changes with the introduction of competition to various elements of service, new indexation of debt, separation of price controls and the potential for significant policy divergence between England and Wales.  All previous water company mergers and acquisitions have had a Stage 2 review carried out and this was a mandatory requirement until November 2015.  It would seem that not carrying out the same process at a time of greater regulatory uncertainty could negatively affect Ofwat’s statutory duty at a critical time when the industry is starting the PR19 process.

Dee Valley Water has the fourth-lowest water bills within the industry (substantially cheaper than Severn Trent Water by 19%), is industry leading for customer service, its local direct labour force and suppliers deliver low-cost infrastructure schemes in comparison to the rest of the industry.  For example, its unit rates for carrying out mains replacement work are considered to be very low and contribute to lower bills for customers.  Dee Valley Water is concerned that Severn Trent would not be able to match these low costs.  The loss of a high-performance business that is small enough to quickly respond to the changing regulatory environment could hinder Ofwat’s ability to regulate, compare and incentivise performance.

As a small business it is able to innovate.  DVW has a long history of supporting its customers before the introduction of social tariffs in the industry.  It was the first company to offer free meter installations back in 1996, four years before being made compulsory for the rest of the water industry.  It was also the first company to offer a weekly direct debit collection to sit alongside their bespoke personalised and extended payment plans.  These bespoke plans support over 11% of its customer base.  It also carries out home visits to customers, and by using its partnerships with other support services helps to ensure their customers receive the best outcomes to suit their circumstances.  It has also pioneered the use of ice-pigging as an efficient method for cleaning mains pipelines.

Dee Valley Water’s importance as a comparator is even more significant for Wales.  It provides a useful comparison of small company performance against that of Dwr Cymru/Welsh Water.  Following the proposed takeover, there would only be Dwr Cymru/Welsh Water operating mainly in Wales and the Welsh Government would therefore lose an important comparator as Severn Trent’s performance will be dominated by its English operation.  Even with a separate Welsh licence, the customer service performance and relative efficiency comparators will be lost for Wales as these services will be provided from England and will not be separable. The lack of this truly Welsh comparison could be more important over time as devolution continues.

The transfer of any type of power or responsibility for water in Wales is a hugely emotive subject.  The people of North Wales in particular have not forgotten their lack of voice over the flooding of Tryweryn in the 1960s.  Carwyn Jones, the Welsh First Minister, has also stated publicly in the Senedd that “I would not support any changes that would result in the loss of Welsh jobs.  The CMA have launched an investigation into the deal …. we will be looking to provide comments”. Given that all previous water company acquisitions have had a stage two review and the public opinion in North Wales regarding Welsh ownership of its own water asset, it would seem wholly inappropriate to appear to be fast-tracking this process with just a stage one review.

In summary, Dee Valley Water provides a unique comparator for the other companies due to its size and performance on billing, customer service and leakage.  The loss of challenging performance targets for other companies could harm overall customer service for the industry.  The fact that it is one of only two Welsh water companies would result in Wales losing a useful performance benchmark for its one remaining company.  Furthermore, the people and elected officials of Wales must be a part of this process to ensure that the outcome of the proposed merger does not negatively impact on the future well-being of the people living in Wales."

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