The companies have also expressed significant concerns about the achievability of the UK water industry regulator’s proposed timescale.

The comments are among a number of issues raised by Water UK, the body which represents UK water and wastewater service suppliers at national and European level, in evidence submitted to the House of  Commons Select Committee for the Environment, Food and Rural Affairs inquiry on the Government’s Water White Paper.

The response said:

“A market opening in 2015, as announced by Ofwat without consultation, would entail an unacceptable degree of operational risk due to resource constraints at companies and in Government and its agencies.

Water companies will bear by far the greatest burden of setting up the market and they have significant concerns about the achievability of Ofwat’s timescale.”

“Attempting to introduce retail competition reforms, upstream reform and significant changes to the price review process affecting all customers, all at the same time, does not make sense.”

The water companies want a more structured and methodical approach to building the necessary market infrastructure with the most straightforward changes introduced first.

Any further refinements or more fundamental measures should be implemented only when the Government has made a full assessment of the benefits and risks associated with upstream reform and following the successful establishment of the retail market arrangements.

The response also cautions against breaking the existing geographical link between a water company and its customers which it says is implied in the Water White Paper. Without this, implementing environmental projects would become less attractive to companies and it would also be far harder to make the case for a company investing in environmental improvements.

Water UK said the growing use of catchment management projects requiring many hours and days of one-to-one engagement and education would not seem attractive if profit took centre stage, especially when hard engineered solutions such as treatment works provide solutions with predictably measurable results.

The sector is also concerned about the possible adverse impacts of the proposed changes on investor confidence which could seriously affect the water companies’ ability to raise finance. The response says:

“Ensuring that the water sector remains a good place for investors to do business is crucial.”

“Both Defra and Ofwat have produced impact assessments of the profound changes they propose to make - to the industry structure and to the price review arrangements respectively - which show that just a small increase in the cost of finance would be enough to wipe out all the benefits.”

“Ofwat’s own calculations show that the radical changes it proposes to make to its price review arrangements are, at the high end, expected to yield savings of £2.5bn over a thirty year period. Ofwat has also calculated that an increase in the cost of capital of just 0.2% would be enough to more than wipe out these benefits.”

Water UK said that both the Government and Ofwat must take great care to ensure that the proposed actions did not inflate financing costs through investors’ perceptions of sectoral risk and that if this were to happen, the adverse impact on customers’ bills and company investment programmes would be significant.