Introduce a points-based licensing scheme to Get A Grip on UK water companies

SIMPLE IDEA TO GET A GRIP ON UK WATER COMPANIES: A POINTS-BASED LICENSING SCHEME

UK water companies have been repeatedly discharging sewage into rivers and seas, causing extensive environmental damage and posing serious health risks. Despite receiving fines, these companies continue to breach their obligations with minimal impact on their profits, executive bonuses, or shareholder dividends. They simply add the cost of those fines to our bills and carry on.

Introducing a points-based licensing scheme would give the regulator, OFWAT, the power it needs to force water companies to live up to their environmental obligations and to force them out of business if they refuse to do so.

THE IDEA IN A NUTSHELL

If the water companies break the rules, they get a fine AND points on their licence. If they repeatedly break the rules, they will eventually hit a limit, and their licence may be revoked. It's the model the government uses to ensure drivers follow the rules, so why not use it to make sure the water companies do too?

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If you're interested to know a little more about how such a scheme might work, keep reading.

SOME MORE DETAIL 👇

The new scheme would make two main changes to existing licensing arrangements:

1. First, it would give the regulator, OFWAT, new powers to apply penalty points to a water company’s licence in response to breaches of relevant regulations. The number of points applied and the time they would remain on the licence would be commensurate with the magnitude of the breach. If and when a licence reached a certain number of points, it would be revoked, and that company would no longer be permitted to operate. 

2. Second, as a condition of holding a licence, it would require each water company to designate a C-Level executive to be formally accountable for the compliance outcomes of board decisions. That person would have a number of statutory duties to perform. Those duties would include demonstrating to OFWAT that they are a fit-and-proper person to hold such a position; showing that the company has sufficient people, systems and procedures in place to ensure regulatory compliance at all times; and being accountable to OFWAT for failures.

Benefits of the Scheme

• It would place regulatory compliance at the heart of all decisions made by the water companies and end the outrageous state of affairs that allows water companies to repeatedly breach their obligations, pay a derisory fine, and move on with no meaningful consequences for company profits, executive bonuses or shareholder dividends. It would allow good water companies to flourish and ensure bad ones could be closed down, leaving open the possibility of the government taking them back into public ownership as an ultimate backstop to protect the environment and consumers. 

• It would focus the minds of board members by introducing significant personal jeopardy for them and, especially, the designated executive. Any designated executive presiding over a period of points accumulation would likely find their career prospects diminished. Any whose tenure led to the revocation of a company’s licence would certainly find themselves out of a job (and likely unable to demonstrate that they were a fit-and-proper person ever to hold such a position again).

• Placing a duty on the company to demonstrate that it has sufficient resources in place to ensure compliance at all times would justify a presumption that any breach resulted from a failure within the company. That would place the onus on the company to demonstrate why that wasn’t the case in any non-compliance investigation and not on OFWAT to prove that it was (an important point given the disparity in financial and legal firepower between OFWAT and the water companies). 

• Perhaps most importantly, this scheme would ensure that a company’s compliance record had impact in the one place they really worry about: the City of London. Any company with a clean licence would be able to attract customers and positive City ratings in the usual way. But those with points on their licence would likely find those things harder, especially if the number of points was nearing the threshold for revocation. Investors would attach risk to a company with points on its licence and would calibrate their investment and financing decisions accordingly. A company in those circumstances might find itself losing customers, paying more for finance and under pressure not to pay out large bonuses or dividends. A company nearing the threshold for licence revocation would likely find itself under irresistible pressure to replace those in key leadership positions.