Here’s a bright idea to improve accountability in the water sector

theguardian.com:

To the surprise of nobody who follows the English and Welsh water sector, the two companies that have been hit with the heaviest penalties for missing performance targets this year are the usual suspects: Southern Water and Thames Water. The dirty duo last year had to return £99m between them to customers after Ofwat’s annual tally of outcomes in areas such as water supply interruptions, pollution incidents and sewer flooding. This time the figure is £80m.

The top end of the league table, note, is also familiar. Severn Trent and United Utilities outperformed targets, as last year, and thus get rewarded by being allowed to recover more money via bills (which may feel less rewarding from the point of view of customers). Correlation doesn’t always imply causation, but it’s worth asking: do different ownership models help to explain the persistent gulf in operational performance?

Southern and Thames were two of the firms that were loaded with debt during the private-equity-led takeover boom soon after the turn of the century. Severn Trent and United escaped that fate and are two of only three big water firms still listed on the stock market, where games of extreme financial engineering are harder to perform.

Certainly, Jonson Cox, who in June stepped down as chair of Ofwat, seemed to join the dots in front of a Lords select committee last month. He bemoaned the old regulatory mantra that said capital structures were for companies to determine, and he took a swipe at investment banks for the role in the takeover and high-leverage spree of the 2000s.

First, it created “the predisposition of thinking of water companies as financial assets”, he argued. And, second, risks were made asymmetric: leverage juices up equity returns for