THE GREAT WELSH WATER POVERTY RACKET

October 15, 2017

15 October 2017

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WELSH WATER is increasing poverty in Wales.

Nearly 400,000 low-income customers are being failed.

They have lost more than £80 million since the not-for-profit company ended its “customer dividend” in 2010.

The company is also secretly adding an extra £4.90 to their bills this year.

This is to help pay for the company’s range of “social tariffs”.

A Rebecca investigation shows these policies mean:

— just one in seven of the eligible low-income customers are being helped

— Welsh Water is reducing its contribution to social tariffs

— the policies are justified by a bogus consultation exercise

— they help boost the bonus of chief executive Chris Jones.

First Minister Carwyn Jones and the Labour administration in Cardiff Bay signed off the policy.

The water regulator, Ofwat, did nothing to prevent the company introducing a discriminatory pricing regime.

Rebecca exposes the great Welsh Water poverty racket.

♦♦♦ 

WELSH WATER’S strategy for dealing with poorer customers is simple.

Any household earning less than £15,000 a year can apply for its flagship HelpU social tariff which caps bills.

The scheme was introduced in 2015.

WELSH WATER LOGO

WELSH WATERGATE
THIS IS the third instalment of a Rebecca investigation that began in 2014. The first article — The Great Welsh Water Robbery — revealed the scale of directors’ pay. We compared Welsh Water’s salaries with the publicly-owned Scottish Water. Welsh Water, half the size of its Scottish cousin, is paying its directors twice as much. 
The piece also claimed that the company’s decision to end its “customer dividend” in 2010 cost consumers £250 million. 
The second instalment — The Great Welsh Water Conspiracy — revealed that water regulator Ofwat effectively fined the company £85 million for a £234 million overspend on its capital expenditure programme between 2010 and 2015. This was the money Rebecca claimed should have gone to customers in the form of reduced bills. 
The article also investigated the company’s use of the Cayman Islands tax haven to borrow money. It raised the possibility that some foreign companies were using the system to avoid paying UK tax.
Rebecca is independent and does not take advertising or sponsorship. Her only income comes from donations …

Originally, the threshold was £12,500 — close to the government’s “relative income poverty” level.

But the company raised the ceiling because:

“… there was a slow uptake of the tariff and analysis of the applications showed that there were a lot of customers who were not eligible as their income was over £12,500 but below £15,000.”

Customers accepted on the HelpU tariff have their bills capped at £190.

The average bill is £439.

By March 2017 the company claimed to have 66,000 customers either on this or one of its other social tariffs.

This is a major boost to low-income families — and Welsh Water is more generous than any of the privately-owned water companies.

But it is a fraction of the numbers who need help.

Welsh Water does not know how many of its 1,442,000 domestic customers are eligible for its social tariffs.

It has only recently commissioned research to try to pinpoint the exact number of vulnerable customers.

But Ofwat, the water regulator, has already done some of the work.

In a 2015 report it concluded that “affordability risks emerge when a household spends more than 3 per cent” of their income on water bills.

Ofwat calculated that nearly a third of Welsh Water’s 1.4 million customers — 32 per cent — were in this category.

This is 460,000 of the company’s domestic consumers.

The earnings of these 460,000 customers was less than £13,300 a year, according to Ofwat’s research.

This is well below Welsh Water’s own £15,000 eligibility figure for its flagship social tariff.

It is also close to the Welsh government’s poverty line.

The company’s says 66,000 of these customers were benefiting from its raft of social tariffs by March 2017.

It means that almost 400,000 are not.

To see what this means in practice, imagine a typical street of terraced houses.

Call it Water Street.

Seven of the households in the street earn less than £15,000 a year and are eligible for reduced bills.

But only one actually receives the social tariff.

This is because customers have to apply for the scheme.

cwmcarn_171014_01_a

WATER STREET
IN OUR fictional street of terraced houses, just one of the seven low-income households who qualify for Welsh Water’s main social tariff actually receive it. There’s also some doubt about the quality of Welsh Water’s figures: its claim that 66,000 customers benefit from the tariffs includes many thousands of consumers with small discounts that are self-funding. For example, customers paying their bills through the benefits system get a discount and the company gets it back because it saves the cost of chasing them for payment. Welsh Water declined to give Rebecca detailed figures for this article.
Photo: Rebecca (this picture of a street in the Valleys is used for illustrative purposes only)

Many are not aware of it — and some, especially pensioners, resent the idea that they’re poor.

So one low-income householder pays a maximum of  £190.

The other six are playing the full bill — on average £439 a year.

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UNTIL 2010 all low-income households benefited from Welsh Water’s “customer dividend”.

The company is a “not-for-profit” business which claims to operate solely for customers.

This allowed the company to hand back some of its profits to customers.

Between 2004 and 2010 more than £150 million was distributed equally to all consumers.

In 2010 every customer received a £22 rebate.

This was especially valuable to low-income customers.

But in 2010 the company abandoned the customer dividend and has never restored it.

In previous articles Rebecca has argued this was a mistake.

We estimate the company made more than £300 million in profits in the seven years since 2010.

The company used these profits to reduce its debt.

Rebecca says these profits should have been handed back to customers.

This would have meant that the 400,000 vulnerable customers who currently do not benefit from the social tariffs would have shared more than £83 million.

They would have shared this sum equally — over £200 over the seven years.

To go back to Water Street, our street of terraced houses.

This year only one will be on the social tariff — a reduced bill of £190.

But, with a restored customer dividend, the other six would also have received a reduction this year.

Each would have got £29.

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IT GETS worse.

In 2015 Welsh Water tried to reduce the cost of its social tariffs.

These were the only direct financial benefit any customer gained from the company’s operations.

Between 2010 and 2015 the cost of the scheme was borne by the company at a cost of £22 million.

But in 2015 the board of directors decided to force customers to shoulder some of the burden.

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PROTECTION RACKET
MENNA RICHARDS, the £70,000 a year senior independent director of Welsh Water, is part of the reason why Welsh Water has escaped proper scrutiny. Ever since it was formed in 2001, the company has enjoyed close links with BBC Wales. A former Director of BBC Wales, Menna Richards joined the company even before she stepped down from the broadcasting post in 2011. When she left the Corporation, her place was taken by her protégé Rhodri Talfan Davies. He’s the son of Geraint Talfan Davies who, after he stepped down as head of BBC Wales in 2000 was succeeded by his protégé, Menna Richards. Geraint Talfan Davies was a founding non-executive director of Welsh Water and served for nearly a decade. This means that Welsh Water has always had a powerful media player on its board. There’s no suggestion BBC Wales has been influenced by these connections. 
Photo: PA

It voted to introduce a one-off increase of £13 for every customer.

It claimed this was to cover the cost of taking over private sewers back in 2011.

At the time, the company — like many other water companies — had agreed to absorb the cost.

Now — four years later and completely out of the blue — the company decided to impose the charge.

The charge would have raised an additional £17 million.

Pressure from watchdogs and the regulator Ofwat forced the company to abandon the idea.

But the board of directors remained determined to reduce the cost of the social tariffs — and had another plan up its sleeve.

Back in 2010 the government introduced new legislation — the Flood and Water Management Act.

This allowed water companies to charge some customers to help pay for social tariffs.

For five years, Welsh Water didn’t use this cross-subsidy.

In 2015 it changed its mind.

In that year it secretly added £1 to every customer’s bill to help pay for the social tariffs.

Last year the figure jumped to £2.55 — and this year the figure has risen to £4.90.

The impact on Water Street has been dramatic.

In three years, the six low-income households in Water Street have each been forced to pay an extra £8.45 to subsidise their neighbour’s social tariff.

water_graph_03

SECRET CHARGES 
FOR THE last three years Welsh Water has been secretly adding an additional levy on 1.4 million customers. Already the hidden tax has raised more than £12 million and Rebecca estimates the total will exceed £42 million by 2020.
Graphic: Rebecca

Customers have not been told about these increases — they do not appear on the annual bills.

By March next year, the company will have raised more than £12 million from these extra charges.

The additional revenue raised from customers means the company has reduced its contribution to its social tariffs.

Last September Welsh Water produced a report for its bondholders — the financial institutions which lend the company money.

It noted that its support for the social tariffs will have dropped from an average of £6.5 million in 2017 to £3.6 million by 2020.

Welsh Water also has ambitions to increase the number of people on social tariffs to 100,000 by 2020.

The company told Rebecca this could mean customers being charged the maximum cross subsidy — £12 per customer — in order to fund some of the additional costs.

We can see what this will mean for the terraced houses in Water Street in 2020.

The increased uptake in the social tariff means two households will now be on the social tariff.

The remaining five, though, will now be paying an extra £12 to help subsidise them …

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WELSH WATER claims a major consultation in 2015 approved its current strategy.

Called “Your Company, Your Say” it generated nearly 12,000 replies and forms the basis of the company’s policies for the five years between 2015 and 2020.

Welsh Water claims this survey backed its proposals.

But the consultation was a carefully contrived public relations stunt.

Neither the 40 page outline of the five year plan nor the 12 page questionnaire were honest.

There’s no mention that the company expected to make a surplus of £40 million a year over the five years.

There is no mention of the possibility of using these profits to restore the customer dividend.

The only question which touched on this issue was on the level of bills.

The question asked was “Investment vs Bills”:

“We want to get the balance right between doing more to prepare for … future challenges and keeping your bills affordable.”

“Which would be your preferred option?”

Four options were then given: reduce bills by £10, keep them the same, increase them by £10 or £20.

INVESTMENT vs BILLS JPEG

LOADED QUESTION
THE QUESTIONNAIRE used by Welsh Water included only one option for reducing bills. Cutting bills by £10 is equal to a “customer dividend” of £14 million. Yet the company makes at least £40 million profit every year. An option to reduce the bills by £20 or £30 should have been included… 
Illustration: Welsh Water

Only the £10 reduction involved a partial restoration of the customer dividend.

It would have cost the company £14 million.

But the questionnaire was not enthusiastic about the option, warning those who ticked this option:

“ … this means doing less to prepare for future challenges.”

In a report on the consultation the then company chairman Robert Ayling said

“Your feedback told us that we’d generally struck the right balance between investment and bills, whilst you didn’t want to see a deterioration in service, even if that could lead to a lower bill”.

He added:

“However, you also told us that keeping bills low is a big priority, and some customers said that a reduction in bills would be welcome.”

Rebecca asked the company for details of the voting on this question.

Welsh Water declined to provide them.

♦♦♦ 

ON THE question of how to handle low-income customers — “helping people who struggle to pay their bill” — the company was even less transparent. 

The questionnaire stated:

“We would spend more to help these people, but it would mean that most of our customers would be paying a little extra on their bill to help those struggling the most”.

It then asks:

“How important is this to you and your community?”

No options were given about the amount of any possible increase.

Instead respondents were given the opportunity of expressing a feeling about it by choosing one of five faces.

Four of them were approving — from happy right through to ecstatic.

Only one of them was neutral.

HAPPY EMOJIS JPEG

LAUGHABLE
IN ITS questionnaire Welsh Water gave customers five choices. One of the five was neutral, the next was happy, followed by very happy and ultra happy. The final choice looked like a character who’d taken magic mushrooms. A balanced survey would have had a neutral option in the centre with two negative faces on the left and two positive faces on the right.
Illustration: Welsh Water

There was no negative option.

A genuine survey would have given concrete examples of what “a little extra” would actually mean.

This should have included a range from paying nothing right up to the legal maximum of £12.

Once again, Welsh Water would not give us the detailed responses to this question.

The company believes this survey — of less than one per cent of its customer base — gives it a licence to charge right up to the £12 maximum.

But, in practice, the vast majority had no say in the process.

And, until this article, they have not even been told the level of the charges they’re being forced to pay.

We could find no evidence the scale of charges has ever been published.

We asked the company if this was correct.

Its reply was:

“As far as we are aware.”

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WELSH WATER’S squeeze on the poor is taking place against a background of growing austerity.

The company’s average £439 bill is £44 more expensive than the England and Wales average.

At the same time Welsh average earnings are among the lowest in the UK.

Research by the Wales TUC says that, after inflation, average pay in Wales actually fell by more than 8 per cent between 2010-2014.

In 2013 the water regulator Ofwat realised its 2010-2015 price review had been too generous to water companies, including Welsh Water.

They were making greater profits than expected because of higher inflation and lower interest charges.

Ofwat chairman Jonson Cox wrote to all the companies in October 2013 .

He said:

“ … having compared the harsh pressure on customers and the generous returns to water company shareholders from macro-economic factors over recent years, I … have been banging the drum about customers and water bills for most of the last year.”

He urged them to consider forgoing all or part of the price increase for the year 2014-2015.

JOHNSON COX

JONSON COX
THE CHAIRMAN of the water regulator Ofwat, Jonson Cox tried — unsuccessfully — to persuade Welsh Water to hand back some of its profits to consumer in 2013.  But why did he make no attempt to stop the company introducing its discriminatory cross-subsidies in 2015? We asked him — he didn’t answer.
Photo: Ofwat

Five of the ten companies did so.

Welsh Water was not one of them.

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THE SITUATION for poor customers is set to get worse.

Back in 2014 the Consumer Council for Water produced a report called “Living with water poverty”.

It noted that new factors were making it harder for poorer households to meet their bills:

“… these are the rise of payday lending and zero hours contracts and the changes to welfare and benefit payments.”

It added that this was forcing some customers to use food banks.

By the time Welsh Water axed its “customer dividend” in 2010, there were 16 food banks in Wales.

By December 2015 the number had jumped to 157.

In February this year a study by the Resolution Foundation found that low income families are facing a triple whammy.

Rising inflation, falling wages and £12 billion in welfare cuts as Universal Credit is rolled out would slash their income over the next four years:

“A typical family with children is set to have a lower disposable income … in 2020-21 … than a typical family this year …”

These families, it concluded, would lose £600.

♦♦♦ 

THERE’S ANOTHER twist in this tale.

Welsh Water’s chief executive Chris Jones has a complex pay package.

On top of his £292,000 basic salary he has a bonus scheme.

The scheme — which takes up 13 pages of the annual report compared to just a couple of paragraphs on the social tariffs — is complex.

Part of the bonus is based on the increase in the company’s reserves.

GDP_2633 - Chris Jones

JONES THE MONEY
WHILE THE poor get poorer — and most of the rest of Wales treads water financially — austerity hasn’t touched chief executive Chris Jones. Last year his salary was £292,000 — but that’s just for starters. Bonus and pension contributions take the total to £773,000. It would take a Welsh Water customer on the company’s main HelpU tariff half a century to make that much money.
Photo: Welsh Water

These have been growing mainly because Welsh Water doesn’t give customers a dividend.

It is also higher because the company has shunted some of the cost of the social tariffs onto customers.

In the last two years Chris Jones has earned at least £130,000 from this element of the bonus scheme.

We asked Welsh Water exactly how much of this was earned as a result of axing the customer dividend and making most customers pay extra for the social tariffs.

The company told us:

“You are misinterpreting the way the scheme works and this is misleading for readers.”

It insisted the scheme:

“  … actually rewards the total value created for customers, including the value of social tariff subsidies made as well as the growth in reserves.”

We asked the company for evidence of this — we could find no reference to the social tariffs being part of the scheme.

The company declined to provide it …

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ON THURSDAY we sent Welsh Water an online of this article.

On Friday the company gave us a long statement.

It did not challenge our analysis of the cross-subsidies or the fact that the majority of low-income customers are not helped.

The statement insisted:

“The article is fundamentally wrong and paints an inaccurate and distorted view of the help we offer those customers who genuinely struggle to pay.”

“Needless to say, we strongly disagree with it.”

“We are currently helping almost 90,000 customers and have committed to increasing this to over 100,000 by 2020 – more than any other water company.”

“At the moment, we are currently signing up on average 160 customers a day to one of our assistance plans and working with around 160 organisations to identify those that we can help”

“As a company, we are committed to helping those customers who genuinely struggle to pay and are proud of the extensive range of support we offer.

“We have no intention of capping the figure at 100,000 when it is reached.”

“We know that at least almost 41,000 customers already save at least £250 on their bill through our HelpU tariff.”

In answer to our criticism of the consultation process which led to cross-subsidies being introduced, the statement noted:

“The claim that our assistance scheme has been implemented in secrecy is wrong.”

“Customer, media and stakeholder engagement has regularly referred to the assistance we provide.”

“The level of support from Welsh Water customers to support those customers who genuinely struggle to pay has always been higher than the level of support seen by other companies in the sector across the UK.”

“Indeed, research commissioned in 2014 looking specifically at the levels of support for assistance tariffs, found that 75% of our customers supported a contribution of up to £15 for supporting those genuinely struggling to pay.”

We asked to see this research but the company declined to provide it.

♦♦♦ 

WE ALSO wrote to First Minister Carwyn Jones.

His Labour administration in Cardiff sets water policy for Wales and was involved in setting Welsh Water’s social tariffs.

We asked the First Minister if he was aware that the company was now charging a large number of poor customers for the privilege of helping a much smaller number of low-income families.

“It’s robbing Peter to pay Paul,” our letter noted.

Joint ministerial council summit

NO REPLY
FIRST MINISTER Carwyn Jones did not answer our email asking him about the Welsh government’s apparent support for Welsh Water’s discriminatory social tariffs.
Photo: PA

“By allowing the many to pay for the few, it goes against the policy of Labour nationally”.

The letter urged him

“— to put a stop to the cross-subsidies

— to force the company to repay the £8.45 as soon as possible

— to restore the customer dividend so that those not on the social tariffs at least get some financial benefit.”

Mr Jones did not reply.

♦♦♦ 

Published: 15 October 2017
© Rebecca

♦♦♦ 

NOTE

Statement from Dŵr Cymru Re: Welsh Water
13 October 2017

The article is fundamentally wrong and paints an inaccurate and distorted view of the help we offer those customers who genuinely struggle to pay. Needless to say, we strongly disagree with it.

As we have already pointed out to you, the interpretation of how our Long Term Variable Pay Scheme (LTSVP) is operated is fundamentally wrong. To begin with, any insinuation that the LTVPS is designed in a way that gives a personal disincentive to fund social tariffs is simply wrong. You are misinterpreting the way the scheme works and this is misleading for readers. Our LTVPS actually rewards the total value created for customers, including the value of social tariff subsidies made as well as the growth in reserves. What this means is that we are equally as incentivised to pay social tariffs as we are to retain reserves.

We are currently helping almost 90,000 customers and have committed to increasing this to over 100,000 by 2020 – more than any other water company. At the moment, we are currently signing up on average 160 customers a day to one of our assistance plans and working with around 160 organisations to identify those that we can help. As a company, we are committed to helping those customers who genuinely struggle to pay and are proud of the extensive range of support we offer.

As a company we are proud to be able to say that we do more than any of the companies in our sector to help those customers who genuinely struggle to pay. Indeed, some companies have set a cap on the number of customers they support and only allow new customers to join their assistance schemes when another customer come off it. We have no intention of capping the figure at 100,000 when it is reached. We know that at least almost 41,000 customers already save at least £250 on their bill through our HelpU tariff.

The level of support from Welsh Water customers to support those customers who genuinely struggle to pay has always been higher than the level of support seen by other companies in the sector across the UK. Indeed, research commissioned in 2014 looking specifically at the levels of support for assistance tariffs, found that 75% of our customers supported a contribution of up to £15 for supporting those genuinely struggling to pay.

To conclude:

—  Any insinuation that Chris or any of the company directors are benefiting financially from money that would otherwise be used for assistance tariffs is wrong.

— The interpretation of LTSVP as diverting profit to increase reserves is wrong

—  The claim that the number of customers actually benefitting from the support we offer is below 66,000 is wrong. We are supporting almost 90,000.

— The claim that our assistance scheme has been implemented in secrecy is wrong. Customer, media and stakeholder engagement has regularly referred to the assistance we provide.

— The claim that the company’s contribution to social tariffs is decreasing is wrong.

—  The interpretation of our customer engagement and research is wrong.

Ends

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NEXT
GORDON ANGLESEA & ARFON JONES: UNANSWERED QUESTIONS
NORTH WALES Police Commissioner Arfon Jones has declined to answer Rebecca questions about his role in the Gordon Anglesea affair. Anglesea died last year after he was gaoled for 12 years for historic child sex abuse. Jones, a former North Wales Police inspector, won’t say why he allowed Anglesea’s widow to keep half of his pension without consulting the Home Office. Nor will he explain why his damning testimony against Anglesea in last autumn’s trial did not feature in the hearings of the North Wales Child Abuse Tribunal in 1996-97. And he won’t say if he made a statement when North Wales Police originally investigated abuse allegations against Anglesea in 1991 …

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THE GREAT WELSH WATER ROBBERY

July 1, 2014

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WELSH WATER customers have been cheated of more than a quarter of a billion pounds.

That’s the conclusion of a Rebecca investigation into Glas Cymru, the company which owns Welsh Water.

Glas Cymru was set up in 2001 as a not-for-profit business claiming to exist solely for the benefit of its customers.

Since then consumers have paid nearly £8,500 million in bills.

Glas Cymru has given them a cash “dividend” of just £150 million over the same period — less than 2 per cent of the total.

Rebecca believes they should have received at least a further £250 million — equivalent to roughly £300 for every customer.

The analysis also demonstrates that the real winners in the Glas Cymru saga have been the members of the board.

They’ve taken millions out of the business when their counterparts in Scotland and Northern Ireland have been satisfied with modest payments.

♦♦♦

ON FRIDAY the 66 people who control Glas Cymru will meet for the fourteenth annual general meeting of the company.  

The company has no shareholders and appoints “members” to take their place.

Nine of these members are the directors of the board.

The other 57 — who receive no payment — are drawn from all over Wales as well as parts of England served by Welsh Water.

They include university professors, retired water employees and trade unionists, accountants, farmers, solicitors — a broad cross-section of the community.

Seventeen are women.

The company they control was conceived in the dying days of the break-up of the Welsh conglomerate Hyder which owned Welsh Water and South Wales Electricity.

Hyder had been created when Welsh Water bought South Wales Electricity in 1996.

WATER MILLIONAIRE  One of the key architects of Glas Cymru, Chris Jones is the current chief executive. In the 14 years of the company's existence he has prospered — awarded nearly £4 million in salary, pensions, annual and long-term bonuses.   Photo: Glas Cymru

LIQUID ENGINEER
ONE OF THE key architects of Glas Cymru, Chris Jones is the current chief executive. In 2001 the company farmed out almost all of its activities to other English utilites — leaving just 130 staff. Until most of these activities were brought back in-house in recent years, Glas Cymru was more a finance company than a genuine water business. Jones is well-rewarded — picking up more than £3.5 million in salary, annual and long-term bonuses in the past 14 years. 
Photo: Glas Cymru

Hyder expanded disastrously and was soon burdened with debt.

In the 1990s Labour accused the privatised water and electricity companies of profiteering.

When it came to power in 1997, the new government quickly imposed a £282 million “windfall tax” on Hyder.

Hyder’s share price collapsed.

It was eventually taken over by the US energy giant Western Power Distribution who were mainly interested in the electricity business.

Two young Hyder executives — Nigel Annett and Chris Jones — came up with the idea of creating a not-for-profit company and using money raised on the international bond market to buy Welsh Water.

Annett was a former merchant banker and Jones had been a civil servant at the Treasury when the water industry was privatised.

Western Power Distribution indicated that it was willing to sell Welsh Water — if Annett and Jones could raise the money.

Annett and Jones began to assemble a board of directors.

They recruited Lord Burns — former Treasury Permanent Secretary — to chair the new company.

Another appointment was Alison Carnwath, also a merchant banker.

Recently retired Controller of BBC Wales, Geraint Talfan Davies, also joined the team.

LORD BURNS  TERRY BURNS welcoming the new chancellor Gordon Brown to the Treasury after Labour's 1997 victory. The Permanent Secretary left the post the following year and was made a Life Peer. Lord Burns was to play an important role at Glas Cymru — and was handsomely rewarded for his contribution. Photo: PA

LORD BURNS
TERRY BURNS welcoming the new chancellor Gordon Brown to the Treasury after Labour’s 1997 victory. The Permanent Secretary left the post the following year and was made a Life Peer. Lord Burns was to play an important role at Glas Cymru — and was handsomely rewarded for his contribution.
Photo: PA

In May 2001 Glas Cymru raised £1,910 million on the bond market and took control of the company.

That same month the existing managing director of Welsh Water, Dr Mike Brooker, joined the board.

♦♦♦

IN 2001 the directors of Glas Cymru faced a fundamental choice about how they were going to be rewarded.

They had two models to choose from.

They could follow the nine other companies in the water sector in England — companies like the giant Thames Water which supplied water and sewerage services to London.

These were companies controlled by shareholders who expected a return on their investment.

The directors were rewarded with substantial salaries and pensions, bonus schemes and lucrative share option schemes.

This was the “Capitalist Nine” option.

Or the Glas Cymru directors could choose the publicly controlled model in Scotland and Northern Ireland where water had not been privatised.

There were three water authorities in Scotland and a single body for Northern Ireland.

These were spartan undertakings where the board were paid decent amounts but had to forego the valuable perks of their counterparts in the rest of the UK.

This was the “Public Sector Four” route.

Glas Cymru’s not-for-profit structure and its early statements suggested it should have been more sympathetic to the “Public Sector Four” club.

In 2001 a company press release was clear — Welsh Water:

” … a monopoly providing an essential public service, is a very low risk business.”

But the board members decided to follow the “Capitalist Nine” when it came to their pay and conditions.

This meant that the pay of the full-time directors would be decided by the non-executives while the latter’s fees would be decided by the entire board.

Soon after the company was formed, Annett and Jones were each awarded a £100,000 bonus.

By 2003 it was clear what the remuneration policy meant in practice.

In that year Scottish Water, a merger of the country’s three water authorities, was created under public control.

The new Scottish Water was far larger than Glas Cymru — its turnover in 2003 was £895 million, compared to the £462 million of Welsh Water.

The chief executive of Scottish Water was paid £175,000 in 2003.

Glas Cymru’s managing director, Dr Mike Brooker, was paid £311,000.

WATER NOT WINE First Minister Alex Salmond is having none of the English "fat cat" syndrome on his patch. The much larger Scottish Water pays less than half the amount Glas Cymru feels it needs to pay its chairman and non-executive directors Photo: PA

WATER NOT WINE
FIRST MINISTER Alex Salmond is having none of the English and Welsh “fat cat” syndrome on his patch. The much larger Scottish Water pays less than half the amount Glas Cymru feels it needs to pay its chairman and non-executive directors
Photo: PA

The chairman of Scottish Water was paid £70,000 compared to the £140,000 taken by Lord Burns, Glas Cymru’s chairman.

Ordinary non-executives in Scotland were paid £18,000 — their counterparts in Wales, like Geraint Talfan Davies, were awarded £35,000.

Fast forward to 2013 and the gap had widened.

Scottish Water’s chief executive’s £252,000 package was less than half of the £538,000 taken home by his then Glas Cymru counterpart Nigel Annett.

Glas Cymru’s new chairman, former British Airways boss Bob Ayling, was paid £204,000 — more than double what Scottish Water felt its chairman deserved.

Non-executive directors of Glas Cymru were paid £56,000 while their Scottish colleagues had to make do with an average of £22,500.

Glas Cymru stoutly defends its remuneration policy:

“Despite Welsh Water being equivalent in scale to that of one of the largest FTSE 250 companies, the Chief Executive’s remuneration (July 2013) was less than half of the average FTSE 250 CEO [chief executive officer].

“We provide drinking water of the highest quality and reliable sanitation to 3 million people; manage over 550 service reservoirs; 27,000km of water mains; over 30,000km of sewers and over 800 wastewater treatment works.”

“The scale and complexity of providing such an essential service warrants directors of the highest calibre and appropriate remuneration packages.”

Geraint Talfan Davies is the only director of Glas Cymru to publish a version of the company’s history.

Yet this account — in his book At Arms Length — is curiously muted about the achievements of Glas Cymru.

GERAINT TALFAN DAVIES  A MEMBER of the powerful Talfan Davies clan, the former BBC Wales Controller became one of the highest paid non-executives in Welsh corporate history when he joined the board of Glas Cymru, the company that owns Welsh Water. He was later joined by Menna Richards, the friend who succeeded him at BBC Wales. It was his son, Rhodri, who took over BBC Wales after Menna Richards departed — a saga explored in the Rebecca Television article The Son Of The Man From Uncle.                                                                 Photo: Seren Books

CAPTAIN OF INDUSTRY, OBE
GERAINT TALFAN DAVIES made nearly £500,000 as a non-executive director of Glas Cymru. The former BBC Wales Controller became one of the highest paid non-executives in Welsh corporate history when he joined the board of Glas Cymru in 2000. He was later joined by Menna Richards, the friend who succeeded him at BBC Wales — she’s currently paid £56,000 a year for her part-time role at Glas Cymru. Photo: Seren Books.    

Just three paragraphs are devoted to the company in a book of more than 350 pages.

There’s no mention of the “customer dividend” which, by the time he finished writing the book, had reached nearly £50 million.

Was he aware that the board faced the possibility that some journalist might come along and make the damaging comparison with Scottish Water?

And that, while the directors were lining their pockets, customers were losing out?

We put these questions to him.

He didn’t reply.

♦♦♦

IT WAS two years before Welsh Water customers began to benefit from the new structure.

In 2003-04 the company began to pay a dividend to its customers.

In this first year the average customer got a rebate of £9 — worth £12 million in all.

The company continued to pay a dividend — it later became known as the “customer dividend”— until 2010.

In that year the “customer dividend” amounted to £28 million — an average payment of £22 for every household.

The total given back to customers was £150 million.

But in 2010, as the world-wide recession kicked in, the company decided that it would suspend the dividend “until prudent to do so”.

The new chairman, former British Airways boss Bob Ayling, said average bills would fall by 7 per cent between 2010 and 2015.

He added:

” … the board has decided that our customers’ interests are best served by accelerating future planned investment to improve the reliability and quality of the essential public service our customers rely on …”

REWARDS Nigel Annett collecting his CBE at Windsor Castle earlier this year. He made over £4 million in his years as a director of Glas Cymru. photo: PA

WATER GONG
NIGEL ANNETT collecting his CBE at Windsor Castle earlier this year. One of the key figures in Glas Cymru, the former merchant banker was part of a team obsessed with the company’s credit rating. Between 2001 and 2010 part of the team’s bonus came from improvements in this rating. Better credit ratings came largely from increased company reserves — money Rebecca believes should have gone to customers. Annett was paid more than £4 million in his years as a director of Glas Cymru.  Photo: PA

Glas Cymru said that, by 2015, £136 million would be spent on this additional capital programme.

Rebecca believes this money should have gone to the company’s hard-pressed customers in the form of a cash dividend.

And our analysis suggests it should have formed part of a total rebate of at least £250 million.

In the period Glas Cymru was giving back £150 million to its customers, South West Water — a company roughly the same size — was paying more than £700 million in dividends to its shareholders …

♦♦♦

THE OWNER of Scottish Water — the Scottish Government — has given up its right to a dividend from the company.

As a result, the regulator can impose lower charges.

In 2014 Scottish Water’s average bill was £339 compared to Welsh Water’s £445 — one of the highest in the UK.

To be fair, it is notoriously difficult to compare one water company’s charges with another.

Completely different circumstances — such as geography, population densities — apply.

However, the trend of pricing is significant.

In 2005 Scottish Water harmonised all of its charging into one integrated system.

In that year the average household bill was, in todays prices, £379.

This year that bill is £339 — £40 a year lower.

In 2005, Glas Cymru’s bill was £396 in today’s money.

This year it’s £445 — £49 a year higher.

Against that increase, Welsh Water can say that it gave consumers back £150 million in the form of “customer dividends” over its 14 year history.

But the value of the £40 reduction in the Scottish Water bill is probably worth £100 million in this year alone.

In March last year Jonson Cox, chairman of the water regulator Ofwat which covers England and Wales, gave a lecture.

“Customers, particularly vulnerable customers, are having a tough time,” he said.

JONSON COX Chairman of the water regulator OFWAT,

JONSON COX
CHAIRMAN OF the water regulator Ofwat, Jonson Cox has pointed out that water companies made higher profits than expected in the period 2010-2015. He called on water companies to share some of their good fortune with customers.   Photo: Ofwat

He noted that, across the industry, bills had risen by 7 per cent in real terms since 2005.

He added ” … over the same period there have been reductions in some household incomes of as much 5 per cent.”

He noted that the sector had enjoyed higher profits because of lower interest rates and higher inflation.

“Given that the licence relates to a long-term monopoly public service, I would have hoped that companies would have shared gains that derive from external factors with their customers (‘gainshare’) …”

He added that Glas Cymru’s structure

“… does provide a form of gainshare with customers …”

But, despite making windfall profits in the period 2010-15, Welsh Water gave none of it back to its customers in the form of cash.

And its figure of £150 million in “customer dividends” has to be treated with some reserve.

Many of the other private equity water companies also gave rebates.

For example, in 2006 South West Water made huge profits and gave each customer a rebate of £20 at a cost of nearly £15 million.

♦♦♦

SO WHAT should the “customer dividend” have been? 

The regulator Ofwat pays close attention to water companies “gearing”.

This is the ratio of debt to what Ofwat calls the Regulatory Capital Value.

By the end of next year, the company expects to have a Regulatory Capital Value of £4,800 million.

The company has debts of £2,900 million.

Glas Cymru’s gearing is 60 per cent.

When Ofwat was preparing its pricing structure for the industry in the period 2015-2020, it believed gearing “should be in the range of 60 to 70 per cent.”

So Glas Cymru is currently right at the bottom of the range.

The lower the percentage, the less is available to pay a “customer dividend”.

The higher the percentage, the more money is available to give back to consumers.

So a straightforward approach would be to say that Welsh Water should go for 65 per cent — bang in the middle of Ofwat’s range.

So what does that five percent mean in terms of a potential “customer dividend”?

The arithmetic is complex but in crude terms it means Glas Cymru could have given back an additional £250 million over the past 14 years.

♦♦♦

ALL IS not lost.

Although the Rebecca investigation shows that customers have been denied £250 million of badly needed cash refunds, the money hasn’t been stolen.

Of course, millions of pounds have been pocketed by the board — but that’s only a fraction of the total sum.

Some of the money — £136 million — was spent on additional capital projects.

That is, on improvements to the infrastructure over and above what the regulator Ofwat required.

Rebecca asked Glas Cymru if that money could have used instead to pay “customer dividends”.

“Correct”, was the response of a spokesman.

The rest of the £250 million lies in the company’s £1,900 million reserves.

♦♦♦

THE AGM next Friday has the power to remedy the situation.

The 57 ordinary members can instruct the board to restore the “customer dividend” with immediate effect.

And they could order the board to find the most cost-effective way to repay the rest of the £250 million cash bonus it owes customers for the period up to 2015.

Rebecca has written to First Minister Carwyn Jones about this investigation.

The Welsh Government has no powers to intervene in the affairs of the company.

CARWYN JONES Rebecca Television has  waof the atasked him to investigate Glas Cymru's stewardship

CARWYN JONES
Rebecca has asked Welsh First Minister Carwyn Jones to investigate Glas Cymru’s handling of the “customer dividend” issue. Labour is campaigning about the “cost of living” crisis for ordinary working people — and a refund from Glas Cymru would be welcomed by many hard-pressed families in Wales.  Photo: PA

But it does have a moral right to speak out on behalf of more than a million Welsh customers if it feels they’re being unfairly treated.

We also asked him to examine the constitution of the company.

In particular, the fact that ordinary members meet formally only twice a year, have no structure of their own, have no secretariat and no research officer.

We also sent a copy of the letter to the leaders of Plaid Cymru, Welsh Conservatives and Liberal Democrats.

None had replied before this article went on-line.

♦♦♦

GLAS CYMRU was angry we had sent the letter before they had a chance to answer the last set of questions we put to them.

“It is very disappointing that you have issued this letter to the First Minister before receiving our final response,” a spokesman said.

“Your hypothesis that customers have been short-changed is wrong.”

The company says it would “be remiss of you” not to acknowledge that

— throughout the decade 2010-2020 bills will have risen by less than the rate of inflation

— in the same period, £3 billion will be invested in improvements to service

— the company’s good credit rating allows it to borrow cheaply, keeping bills lower than they otherwise would be: “a win, win for our customers”

— £250 million has been returned to customers either through dividends, accelerated investment, social tariffs and lower bills

— this is money “that in any other company would have gone to shareholders”

— customer satisfaction and “perception of value for money ranks us either top or second compared to other companies …”

— Glas Cymru adds £1,000 million to the Welsh economy

— although the 57 ordinary members meet formally only twice a year, other meetings with high-profile experts also take place

— the company also has a Customer Challenge Group which scrutinises the company’s plans.

In another statement, the added that its social tariffs helped 64,000 households in Wales compared to 72,000 for the whole of England.

Glas Cymru said it is

“proud of its unique non-shareholder business model which has delivered significant benefits to our customers in the form of lower bills and increased investment.”

Many of these points had been made in earlier responses to our questions.

Some we disagree with.

Others are irrelevant.

The fundamental point is that every penny Glas Cymru is talking about comes from consumers.

And the plain fact is that the actual direct cash benefit most customers have seen from Glas Cymru’s stewardship of Welsh Water is pitifully small.

The money given back to customers is £150 million — just 2 per cent of the £8,500 million they’ve paid out in bills.

♦♦♦

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