Water Industry (Financial Assistance) Bill

I have sought from Ofwat an explanation of its current policy. I have not sat down with Ofwat to go through what more it might do. I want to raise the matter here and see what colleagues think. There is a debate to be had about Ofwat and I hope that changes in what Ofwat does and how it behaves will come out of it. These issues also relate to other regulators, such as those for gas and electricity. This is an issue about regulators and private utilities. The Secretary of State kindly replied to me, as the Minister knows. I will quote the key points from her letter that responds to the issues that I have raised in Committee. The first matter relates to the point made by my hon. Friend the Member for St Ives (Andrew George):"““I would first like to point out that it may not be Thames Water Utilities Limited who carry out the project. We have consulted on provisions that would enable the project to be delivered by a separate Infrastructure Provider to be regulated by Ofwat separately from Thames Water Utilities Limited. Any contingent financial support will be directed at assisting the entity that is building the Tunnel—and so not necessarily Thames Water Utilities Limited.””" I understand that. It does not change things, but it is important to realise that although Thames Water may be the supplicant, it may not be Thames Water that does the building. The Secretary of State continued:"““The level of gearing and the securitised structure of Thames Water Utilities Limited is similar to that of some other water companies. Our and Ofwat's analysis shows that contingent financial support from government would be required for Thames Water Utilities Limited (or any other water company) to build a single project of the scale and complexity of the Tunnel whatever its financial structure (within the norms for water companies).””" I do not dispute that. I am not denying that this is a very big project, or that it may need the reassurance that comes from being supported nationally, rather than just being the project of a regional water company. The Secretary of State went on:"““Our goal is to ensure that the level of this contingent financial support is kept to a minimum and that we achieve best value for money for customers.””" Amen to both of those things. We all have the same objectives. She continued:"““It is in that context that we are considering whether the Tunnel should be built by the Thames Water Utilities Limited or a separate entity.””" The Secretary of State then discusses the question of where Ofwat's rules currently bite. She states:"““Ofwat regulates each water and sewerage company in England and Wales under the terms of its Instrument of Appointment…The licence contains conditions aimed at ensuring that each water and sewerage company has sufficient financial and managerial resources to carry out its functions and that the regulated company is operated separately from the rest of the group.””" That is quite important. She continues:"““These licence conditions are collectively known as the regulatory ring-fence.""It is Ofwat's view that it is for the management of each regulated water company to determine its own optimal financial structure.””" Within limits, I do not dissent from that, but it seems to me that Ofwat is there to hold the reins properly. The Secretary of State continues:"““Where companies have proposed alternative financial structures, including refinancing arrangements which include securitised structures, it””—" Ofwat—"““has introduced amendments to the regulatory ring-fence to reassure itself and customers that companies remain in a position to finance their functions and that consumers' interests are not adversely affected by a company's capital structure.””" I could go through the finances of Thames Water since its last purchase in 2006, but I will not, to save the Committee's time. Instead, I shall summarise them. The Secretary of State confirms:"““The publicly available Regulated Accounts of Thames Water Utilities Limited show that the only year in which Thames Water paid out unusually high dividends was in 2006-07 following the capital restructuring. In 2010 for example…the dividend paid out was a total of £307.9 million…covered by profits after tax at £331 million.””" It paid out in dividends nearly as much as it received in profits—just £30 million short. In the previous year, 2009, the dividend paid out was £222 million and the profits after tax were £314 million. That was obviously a more healthy balance.