Water Privatization and Sustainability 1997-2001

Geoforum 37 (2006) 488504 www.elsevier.
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Water regulation and sustainability 19972001: Adoption or adaptation?

Adrian Cashman
SheYeld University, Management School, 9 Mappin Street, SheYeld S1 4DT, United Kingdom Received 20 August 2004; received in revised form 26 May 2005
Abstract In 1997 there was a change in government in the UK with the Labour Party coming into power for the Wrst time since 1979. Among the commitments made was the intention to put sustainability at the heart of government and decision-making. There was also a commitment to introduce reforms of the utility sector. In part this was a response to public concern over the conduct and behaviour of the privatised utilities, made more pertinent in the case of the water sector by the impact of several seasons of below average rainfall and high levels of leakage. In light of this the need for change took on a particular urgency. This paper examines some of the developments in water regulation under the 19972001 Labour administration. Through two sets of events; the 1997 Water Summit and the 19971999 Price Review the paper examines the discursive processes through which sustainability has been incorporated into water regulation. It discusses the changes in the practices of regulation and whether these could be characterised as the adoption of sustainability by the water sector or a strategy of adaptation to accommodate sustainability within an existing economic paradigm. 2005 Elsevier Ltd. All rights reserved.
Keywords: Regulation; Sustainability; Water industry; Water Summit; Price Review
1. Introduction The management of water resources and services is a complex task having to meet a number of diVerent and often contradictory economic, social and environmental goals. The very nature of water and its myriad uses gives rise to the need for mediation and regulation of an organic system characterised by physical linkages and interdependencies which translate into economic ones (Parker and Sewell, 1988). Such interdependencies lead to policy dilemmas generated by the exploitation of the water environment. As Hassan (1998) observed The diYculty of developing policies which eYciently and fairly satisfy most interests may be
illustrated by problems relating to the ownership structure Time and again, the central and local authorities have given greater consideration to private-industrial interests than to the wider, social costs Consequently, attempts to reform were invariably incomplete, if not harmful, in impact; only when the resultant costs became unendurable was society prepared to undertake the by now enormous expenditure to remedy past neglect and to thereby ensure sustainable use of the water environment. Reconciling the economic with social and environmental ambitions e.g. support for ecology, aesthetics and justice, within an appropriate delivery and regulatory framework has been an ongoing concern for well over 150 years in Britain. Throughout state agencies have played an important role as shapers of policies and
E-mail address: a.cashman@sheYeld.ac.uk 0016-7185/$ - see front matter 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.geoforum.2005.05.005
A. Cashman / Geoforum 37 (2006) 488504
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intermediaries in policy solutions and as such regulatory solutions have been situated within and mediated by the ideological currencies of their time. This paper examines developments in the regulation of the water sector in England and Wales, with a particular emphasis on sustainability, as they evolved during the period 19972001. In particular the paper considers the inXuence of networks of advocacy coalitions (Sabatier, 1998) on policy discourses and regulatory outcomes of sustainability and the environment. Policy formulation and more especially its regulatory implementation may be seen as a continuous process characterised by negotiated outcomes, bargaining and compromise involving a wide variety of participants and interests (Maloney, 2001). Policy does not just shape the implementing agencies it also encourages or discourages the participation of outside actors, private and other governmental participants (Mazmanian and Sabatier, 1983 cited in Maloney, 2001). By regarding policy formulation and implementation as an interactive process and given the diversity of participants there will be an increasing importance of issue networks. Jordan and Maloney (1997) have presented two contrasting though complementing images of policy formulation and implementation: order and predictability, and complexity. In the latter it emerges from a disorderly interaction of participants, network coalitions and bureaucrats; whilst the former stresses the patterns of policy-making stability through which such complexity is processed (Maloney, 2001). The two contrasting though interrelated states share a common attribute, there is a subject or focus around which events occur. The main subject of the paper concerns the water industry in England and Wales and its mode of regulation. Two arenas of representation (Cocklin and Blunden, 1998) are considered; the 1997 Water Summit and the 19971999 Price Review (PR99) are used to explore the rhetoric and discourses employed and their inXuence on practices. These are not independent events but overlapping layers which inXuence subsequent events and their (re)interpretation over time providing a nexus for exploring the relationship between the regulation of the water industry and its contribution to a sustainable society. Of particular importance for this paper are the dual questions of what and whether sustainability has been incorporated as integral to regulatory and institutional practices. If sustainability has been so adopted then it represents an extension and incorporation of environmentalism into the neoliberal formulation of water services provision (McCarthy and Prudham, 2004). Alternatively, notions of sustainability may have been selectively reformulated and represented for incorporation within the existing practices of regulation. If sustainability has been co-opted or usurped in this way then this arguably represents an adaptation by the principle regulatory and institutional actors to suit their own
purposes and an extension of the economising of the environment. Three main sources have been drawn on. Interviews with key informants in the water sector were the primary data source complemented by the proceedings of Parliamentary Committees, documents and reports. A total of 37 interviews with a total of 43 informants were conducted, drawn from a broad range of stakeholders: water companies, government, regulators, unions, environmental groups and NGOs (see Table 1 for grouping), providing a cross section of expertise, types of organisation and level of responsibility. Some research on privatisation has examined the relationships between industry and government whilst other research has looked at the way the industry practices have changed in response to the requirements of government or the economic and Wnancial markets. Previous studies have focused on the impact of and responses to privatisation (Bakker, 1999, 2000, 2001, 2002, 2003; Haughton, 1998; Ogden, 1994, 1995, 1997; Ogden and Anderson, 1999; Ogden and Watson, 1999; SchoWeld and Shaoul, 1997; Shaoul, 1997, 1998a,b; Swyngedouw et al., 2002) albeit from diVering theoretical perspectives. From a critical accounting perspective Shaoul (1997, 1998a,b) has provided a critique of the way in which companies have under invested in infrastructure and services in order to increase proWts, doing so because of the ambiguous requirements and practices of the economic regulator. Ogden (1994, 1995, 1997) has charted how internal practices and notions of accountability with respect to trade unions and customers have developed in the face of regulatory requirements. Other studies have considered real regulation and the changes in the water industry over time (Beesley, 1997, 1999; Kinnersley, 1994). From a Rgulationist perspective writers such as Bakker (2003), Haughton (1998), Cocklin and Blunden (1998), Gandy (1997) and Swyngedouw et al. (2002) have considered and interpreted transformations in water management and the industry. However, there appears to be a scarcity of work that has considered the dynamics between sustainability and the development of regulatory practices at a practical level. The tendency has been to treat them as separate spheres of enquiry. However, there is a need to examine the extent to which political, social and economic moves
Table 1 List of informants Grouping DETR Informants Economic Informants Environment Agency Informants Environmental Informants Water Company Informants Other Regulatory Informants Social Informants Number of interviews 3 3 5 5 14 4 3
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towards sustainable development can be interpreted as part of an emergent mode of social regulation (Gibbs, 1996). It has been noted that only recently has research begun to explore the discursive and institutional shifts in environmental policies and regulatory frameworks that reXect a new mode of social and ecological regulation (Prudham, 2004). In this respect it echos Cocklin and Blundens (1998) earlier work on what they refer to as the interpretive phase in the circuit of regulation. It is argued that the discourses are important as they deWne what is considered to be important, which in turn creates the possibilities for action and change. They proscribe what can and cannot be done (Foucault, 1980, 2004). This paper seeks to integrate the elements sustainability and regulatory practices by drawing on a variety of sources that relate to a particular period of time in a manner similar to the work undertaken by HoliWeld (2004) on translating policy into managerial practice. It does so with a view to illustrating the evolutionary elements of regulatory practices, suggesting that this represents an emergent set of material practices that supports a particular (neoliberalist) regime of production and relationships (Bakker, 2002; McCarthy and Prudham, 2004). The Wrst part of the paper considers the nature of regulation and the water industry in England and Wales by considering the inXuences at work in forming, shaping and directing the tenor of regulation. Here regulation has a softer meaning, referring to rules and relationships (Clark, 1992) in contrast to the harder stylised rituals of legal requirements. In the second part of the paper the two sets of events, in contrast to the geographical regulatory space referred to by Cocklin and Blunden (1998), are examined. The Water Summit of 1997 provided an impetus for changes to the regulatory framework such that environmental concerns and sustainability attained a greater signiWcance; secondly the inXuence of sustainability as a major facet of the regulatory process is traced through PR99. In doing so it focuses primarily on the discursive dimensions of the setting of the environmental programme and not the whole of the regulatory processes. It is acknowledged that such a focus only looks at a part of the environmental and societal activities and therefore does not fully capture or consider the full range of activities and practices undertaken by water companies and regulators with respect to sustainable development. Many other practices are separate from the regulatory process described here and have an impact on the material conditions of the environment. It is argued that the two sets of events, The Water Summit and PR99 made an important contribution to changes in the nature and structure of regulation in the water industry of England and Wales. As a result environmental sustainability is no longer a side issue but has become an important facet of regulation bringing with it an altered set of material practices.
2. Water services: privatisation and its regulation 2.1. Privatisation The privatisation of the water industry in England and Wales in 1989 was the latest change in institutional structure that can be traced back to the mid 19th century. Initially water supply was mostly in the hands of the private sector regulated by local governance corporate structures and accountable to parliament. However, from the late 19th to early 20th century the overwhelming majority of private companies were brought under public control with local authorities providing water supply and sewerage services (Johnson and Handmer, 2002). In 1973 the Water Act removed responsibility for water and wastewater services from local authorities and placed them under the control of the 10 Regional Water Authorities (RWAs) that were the subject of privatisation in 1989. The motivation for selling oV the ten RWAs has variously been ascribed to a combination of political and practical motivations; a politically motivated desire to reduce the role of the state in the delivery of services, and practical in that it shifted the Wnancial burden of meeting European Community environmental obligations and addressing asset deterioration from the state to the private sector. As Bakker (2002) observed the regulatory framework established as part of the privatisation process was predicated upon a neo-classical model designed to mitigate and eventually overcome, market failure. The Water Act 1989 that heralded in privatisation recognised that there would have to be a separation of operational and regulatory functions (Rees and Synnott, 1988; Hassan, 1998) and saw the creation of statutory bodies to regulate the water industry. The regulatory bodies include the National Rivers Authority (NRA) to undertake environmental regulation, which was succeeded in 1996 by the Environment Agency, the Drinking Water Inspectorate (DWI) to oversee water quality issues and Ofwat to undertake economic and Wnancial regulation. This regulatory framework attempted to ensure that both customers and environment were protected whilst promoting private enterprise for service provision (Summerton, 1998). Privatisation introduced new structures charged with overseeing the water companies activities and entailed far reaching changes to the regulatory system, to water policy, industry structure and importantly, the Wnancial basis on which the companies were to operate and fund their expenditures (Rees and Synnott, 1988). Privatisation re-conWgured the public good provision of water to a position where water was increasingly seen as an economic good to be traded for the beneWts that would Xow from such transactions. As a result the requirements of regulation, what Jessop (1995) refers to as top down juridico-political regulation, based on standards, legal
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requirements, levels of service and sanction, became more formalised and extensive. These requirements were predicated by and framed in predominantly economic terms, drawing on the rationale and rhetoric of the market. The predominance of the logic of the market altered the nature of the relationships between the state and its agencies, the service providers, civic society and environment/sustainability. Increasingly these relationships were expressed in market terms and guided by market forces. Thus there has been the development of the concept of levels of service, for example a companys performance is measured by how quickly it responds to letters or phone calls rather than the content of the reply or the satisfaction of the customer. These measures are supposed to reXect the quality of the service being provided. The privileging of the economic sphere was reXected in the dominant role accorded to the economic regulator, Ofwat, through its ability to control prices and the licence conditions of water companies. 2.2. Economic regulation In England and Wales Ofwat is a non-ministerial government body that is speciWcally designed to act independently at arms length from the government. It regulates the industry through setting of price limits, service targets, levels of service, and conditions on the maintenance of assets. Under the 1991 Water Industry Act the primary duties of Ofwat are to ensure that the functions of the companies are properly carried out and those companies are able to properly Wnance their functions by earning a reasonable rate of return. However, since 1997, Ofwat has sought to make the protection of customer interests a primary duty (Maloney, 2001). Importantly, there is only a secondary general duty to further conservation, and only in so far as it is consistent with the primary duties. Water companies are dependent on Ofwat for the determination of prices that can be charged to consumers and are responsible for submitting detailed analyses to meet Ofwat prescribed requirements. Ofwat, through a process known as the Periodic Review of Prices carries out a quinquennial consultation and review of the future price limits to ensure that water companies have suYcient Wnance to carry out their obligations. It involves every Wve years carrying out a detailed review of water companies performance and obligations, investment plans, asset management plans and Wnance requirements and, following extensive consultation, setting price limits for the next Wve years. Prices were Wrst set at privatisation in 1989 by the government and without the involvement of Ofwat as it was still being formed. The priority at that stage was to enable the industry to raise the investment required to address the deterioration of their underground assets. Ofwat produced the Wrst Periodic Review in 1994 during which the main concern for
investment and funding shifted to meeting the requirements of the ECs Urban Waste Water Treatment Directive (UWWTD) to upgrade the majority of all sewage treatment works in the UK, to be implemented by 2000. In 1989 the main concern was lack of investment, poor assets and the government backsliding against EU directives on the control of pollution. Now that all that has been done everyone everybody is arguing about underground assets, which is a sustainability thing. Water Company Informant A. During the 1994 Periodic Review Ofwat established a quadripartite arrangement under the aegis of the Department of the Environment consisting of Ofwat, DWI and NRA together with the water companies to examine the costs of achieving speciWc standards associated with the UWWTD, and the impact on customer bills. This quadripartite process resulted in public advice in an open letter from the economic regulator to Government as to the options and likely costs, and their implications for customers bills. In the 1999 Price Review, the role of the quadripartite arrangement became one which provided an input into the ministers decision-making process, rather than the more powerful role it played in 1994. It moved away from the concept of four parties involved in making decisions, towards a tripartite advisory input (Helm, 2000). The Secretary of State provided guidance to Ofwat but Ofwat still has wide discretionary powers on social and environmental issues, which are pursued in ways that do not always reXect Ministers objectives (Helm, 2000). 2.3. Environmental regulation The EA apart from its operational responsibilities for water resource management has regulatory powers to allow it to protect and improve the water environment. It also advises government on the development and implementation of environmental objectives and targets and provides assistance on national and international regulatory issues, assuming a central role in formulating and implementing environmental policies. The EA has, under the Environment Act (1995), a very general duty that it shall in discharging its functions so as to protect or enhance the environment, taken as a whole, [contribute] towards attaining the objective of sustainable development. With respect to the EAs regulatory practices it has been suggested that it needs to decide whether it is a champion of the environment or of sustainable development. As Bell and Gray (2002) noted, if it is the latter then the interests and concerns of industry need to be taken more seriously and a consensus built around the concept of sustainable development that balances economic and environmental considerations. Increasingly statutory environmental obligations have originated from the EU bringing more and more aspects
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of economic activity within the ambit of environmental regulation and control with the EA having the responsibility for their implementation and application. Thus the EA has an enormous impact on water companies capital expenditure and on Ofwats Periodic Review process. To assist companies in drawing up their asset management plans the EA prepares an environmental programme (National Environmental Programme) based on its interpretation of the environmental obligations it considers should be placed on water companies. The environmental obligations arise from both EU directives and UK legislation, and are prepared in consultation with Defra and English Nature. Endorsement of this programme is sought from the Secretaries of State, reinforcing the institutional legitimacy of its submissions. The extent and hence the cost of meeting the EAs environmental programme has been a source of tension between the EA and Ofwat (Kinnersley, 1998). 2.4. Sustainable development Sustainable development in spite of all that has been written remains a contested concept (Lele, 1991; Pezzoli, 1997; Redclift, 1992), partly due to the broadness of the concept. The term has ideological and political content as well as its ecological and economic content and therefore its interpretation cannot be free of underlying assumptions, to theorise about sustainable development is to prescribe a particular way of conceptualising it. How sustainable development is conceptualised becomes associated with how principles such as human well-being, basic needs and services, preservation of environmental resources and integrating economics and environment into decision-making are to be achieved. Notions of sustainable development have proved to be most powerful in contextualised cases, for while it may be diYcult to reach consensus about what it is globally it is far easier to have concrete ideas about what it would look like in speciWc instances. The processes of politics and sustainable development cannot be separated from each other and in this respect may be seen as part of an ongoing debate about the nature of social progress which has concerned political decision-makers and social sciences throughout the twentieth century (Meadowcroft, 1999). As Cocklin and Blunden (1998) put it, sustainability is a social construction and as such is contextually contingent. Following the 1992 Rio Summit the UK government published This Common Inheritance: Britains Environmental Strategy (1990). The paper did no more than reiterate existing pledges (350 of them) by promising to review, consider, examine or study further policy promises. It did though make the DoE 1 the lead agency
1 From 1997 renamed the Department of the Environment Transport and Regions (DETR) and then from 2001 the Department for Environment, Food and Rural AVairs (Defra).
for the implementation of sustainable development policies. Under the last Conservative government, sustainable development was deWned in cost-beneWt terms as the relationship between economic growth and environmental protection and the internalisation of externalities within such an essentially economic approach to decision-making. The New Labour government broadened the previous understanding of sustainable development to include social factors, replacing the previous approach with a social welfare approach which builds social justice and the social beneWts of environmental protection into its concept of sustainable development (Bell and Gray, 2002). As one informant noted, There is always a diVerence between a Conservative government who believe more in structure, markets and general incentives and a Labour government who are more concerned with being involved in the details of doing things. Environment Agency Informant B. The government now described achieving sustainable development (Defra, 2001) as requiring: Social progress which recognises the needs of everyone; EVective protection of the environment; Prudent use of natural resources; and Maintenance of high stable levels of economic growth and employment. In the case of the water companies in England and Wales their conception of sustainable development, as reXected in their oYcial publications and reports is couched in similar terms though importantly the emphasis is somewhat diVerent. For example one water company stated that it means improving future performance and, positioning the company to capitalise on future opportunities and a robust platform for longterm business growth (AWG, 1999). This interpretation was also echoed in the interviews with companies, one informant said that, its just making sure that the customers pay enough for their long term service and they shouldnt really be subsidised. (Water Company Informant K) Indeed this was echoed by another informant, Sustainability to them [water companies] meant having price limits that were enough to spend on what their engineers felt they wanted to spend on, maintaining their plant at somebody elses expense, namely the customer. (Economic Informant A) In 2001 the EA as a result of its own internal review and in part in response to Parliamentary criticism (SCETRA, 2000) produced An Environmental Vision:
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The Environment Agencys Contribution to Sustainable Development, which reXected Government policies and contained the better quality of life aim taken from the white paper on sustainable development (Bell and Gray, 2002). In contrast Ofwat adopted a reactionary role, preferring to suggest that there was no need for it to accommodate sustainable development as part of its workings. Very clearly there had been a change in the way sustainable development was being conceptualised from a policy perspective and more importantly as it aVected those agencies of the state that had responsibility for shaping its implementation.
subject to formal pressures and informal forces that continue to shape them over time. The regulatory framework is not just a technical process but one that is situated within the interplay of the economy and civil society that Wnd expression through the setting and application of rules and standards through which control is exercised. As Bakker (2000) observed, the state 2 and its regulatory functions have undergone signiWcant structural and normative transformations since privatisation. It is in the particularities that the form of regulatory practices constitutes itself. As Jessop (1995) put it: In the real world there are only deWnite objects of regulation that are shaped in and through deWnite modes of regulation; and deWnite objects of governance that are shaped in and through deWnite modes of governance. This in turn highlights the need to study the many and varied struggles over the constitution of such objects and the necessary failures and incompleteness of their regularisation or governmentalisation. The modes of social co-ordination encompass the ways in which stakeholders co-ordinate and interact with each other to achieve speciWc economic, social or political objectives. As such, they are concerned with the practices that facilitate and allow the resolution and co-ordination of collective decision-making or goal attainment. For Jessop (1995) it is about problem solving and crisis management and thus has a stronger emphasis on the meso-level, bottom-up linkages. Regulatory practices can be seen as a formalisation of temporarily dominant discourses such that actions and outcomes are interpreted and legitimated in the light of these discourses. This suggests the idea of judgement and competence to judge, spheres of inXuence and control within which competence can be exercised and, the means of sanction and coercion to counter deviation from norms and to re-establish the required harmonious relationships or common set of discourses. As Foucault (1980) observed: Each society has its regime of truth, its general politics of truth: that is, the type of discourse which it accepts and makes function as true; the mechanisms and instances which enable one to distinguish false and true statements, the means by which each is sanctioned; the techniques and
3. The characteristics of regulatory practices 3.1. Regulation as co-ordination There has been increasing attention paid to the questioning of the place of environmentalism, which includes the concept of sustainable development both as part of the re-organisation of the functions of the state and of neoliberal market-led societies. Prudham (2004) recently noted that neoliberalism and modern environmentalism have together emerged as the most serious political and ideological foundations of post-Fordist social regulation with each incorporating elements of each others approach. Whilst it is true that the environmental movement has often oVered a powerful critique of the workings of both state and capital it would appear, as suggested in this paper, that there is between them an emerging and evolving modus vivendi. This suggests that a real regulation lens oVers an appropriate framework through which to interrogate material practices. Real regulation refers to the examination of grounded social processes, embedded in administrative frameworks and practices (Clark, 1992) that oVers scope for interpreting the role of the agencies of the state in administering nature and society as well as the place and role of other actors in mediating and implementing competing regulatory requirements. Through the cases presented it is possible to identify some of the material practices and outcomes that comprise the contemporary nature of mode of social regulation of the water sector. Any regulatory framework encompasses sets of rules both formal and informal that organise and constrain human interactions and include established laws, custom and practice (Newberry, 1999). A complex web of norms, expectations, and sanctions supports these ways of doing in order to regularise problems of co-ordination or deviation. Together these may be said to make up the mode of social regulation of the sector. In a formal sense regulation is an outcome of a legislative process which establishes the framework and structure for the expression and implementation of rules. The rituals of regulation are however a dynamic and interactive process
2 The state in this sense is not understood as a monolithic entity but rather in the sense that Jessop (1990) conceived it as a complex community with its own mores. In considering the processes of structural transformation and institutional change within such a complex system as the state, the state as an amorphous complex of agencies (Schmitter, 1985) is an inertial and reactive system that evolves through iterative and unreXective adaptation to failure.
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procedures accorded value in the acquisition of truth; the status of those who are charged with saying what counts as true. The form of regulationthe regularisation of relationshipsmay be seen as the outcome of interests or groups vying with each other to determine the extent and form of (environmental or sustainability) policies. Oates and Portney (2001) have suggested that the competition among stakeholders for political inXuence over policy outcomes and the interplay with government can lead to more eYcient outcomes and social welfare. The implementation of policies oVers an arena for the reconciliation of divergent interests either through selective emphasis of policy, administrative provisions or their implementation. The actual choice and use of regulatory instruments is therefore based on the dynamics between policymakers and stakeholders (Oates and Portney, 2001). It also draws on the interpretation of concrete material practices that are not the focus of regulatory process centred discourses. The dynamics include discourses of norms of acceptable conduct while the exercise of control suggests the existence of power relationships between participants. Regulation in this sense therefore goes beyond a one-way process of communication to include processes of interaction. 3.2. The reordering of regulation It has been argued that privatisation may be seen as a process of re-regulation of the water sector (Bakker, 2003; Gibbs and Jonas, 2000) in the face of changing political, economic and social circumstances. It is a move characterised by shifting regulatory relationships from government to governance in which formal authority is layered with informal arrangements and negotiated patterns of co-operation between stakeholders. The mode of social regulation has been characterised by the emergence of new institutional arrangements (Drummond and Marsden, 1995) and changes in the structure of government where Departments of State have increasingly become organisational umbrellas under which a plethora of agencies operate. This is reXected by a preference for disaggregation rather than a uniWed structure. This tendency manifests itself through; The dominance of the business-consumerist model as opposed to a government-citizenship model seen in a preoccupation with customer not political rights and with managerialism rather than constitutionalism. (Painter, 1994) It also includes on-going changes in regulatory practices characterised by the development of multiple levels of regulations, reporting, accountabilities and sanctions. The result has been regulatory creep and a growth of economic intrusion by new structures of government
such as the EA, Ofwat and the DWI. Thus with the involvement of the private sector there has been an accompanying growth of economic, environmental, resource and quality oversight. Organisational elements of regulation include such notions as targets, performance indicators, reporting and overlapping responsibilities. This system of rationalisation emphasises managerial processes and accountability in terms of information Xow and performance with a tendency of oversight by non-departmental public bodies (NDPBs), increasing the responsibility of central government but at arms length from a political process. Such a system blurs the line of responsibility, replacing local political accountability with managerial networks and the elected substituted by the appointed (Flinders, 2001). In part it has led to the growth of local consultation processes by state agencies on local issues or on national issues but at localised levels e.g., Catchment Abstraction Management Strategies, Local Environmental Action Plans, and Regional Flood Defence Committees. 3.3. The role of networks Privatisation brought in a range of new stakeholders (Page, 2002) who represent a wider though arguably more fragmented polity which has allowed some stakeholders a degree of inXuence they did not previously enjoy. There has been an increasing emphasis placed on local partnerships/networks and engagement with civic society (environmental groups, community organisations, business and other stakeholders) by the State as vehicles of policy deliberation and delivery. For Swyngedouw et al. (2002) the shift in the public/private boundary has meant that the relationship between individuals or social groups and the mode of water regulation has undergone a profound change. Prudham (2004) also notes the greater participation of citizen coalitions with varying degrees of capacity and accountability and especially the engagement of environmental social movements in modulating environmental transformations. The relationship between civil society and its political expression in the form of institutions that undertake public managerial and regulatory functions is increasingly being supplemented by deliberative forms of representation characterised by horizontal networks of relationships within participatory frameworks. The transition to a dehierarchised (horizontal) model of policy processes and interactions is a form of democratisation with its own accountabilities and legitimacy but its abilities to exercise power still require consideration and inquiry. It is not suYcient that outcomes are negotiated and accepted by networks of stakeholders as often they are drawn from a subset of sectoral or technological expertise whose consent becomes a necessary reality within the realisation of regulation.
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Papadopolous (2000) has highlighted the use of forms of discursive governance in areas such as environmental mediation, pointing to the use of deliberative communication as a mechanism for resolving conXict and problem solving. Participation in discursive governance is on the basis of the stakes participants hold with respect to the issues which Schmitter (2000) suggests marks a shift from political citizenship, articulated through state-based forms of governance, to a stakeholder based polity. If this is the case then issues of legitimacy, status and recognition to participate as well as the role of networks and the terms of participation become important characteristics. Struggles over the boundaries between the economic and the extra-economic become central to the redeWnition of the role of the state, state interventions and its transformations (Jessop and Sum, 2001). This has led to the emergence of forms of institutional practices based on the mediation of legitimated interests within an expanding regulatory milieu. The interplay between Ofwat located within the economic Weld and the EA as an extra-economic agent each with diVering sets of values, struggling over overlapping boundaries of jurisdiction provides an example of this. The cleavage between the two has allowed greater participation from a wider polity than would otherwise have been the case under a more homogenous, hegemonic ordering. In a sense this represents a degree of democratisation that has not previously existed. State agencies not only mediate economic transactions but are also central to mediating aspects of social and civil life. The discursive/mediating forms of regulation are an outcome of the economic and regulatory organisation of the water industry. The highlighting of the discursive component of regulation is important as dominant discourses create and proscribe what can and cannot be allowed, they signify what counts as important and are the impetus for action and practices that respond to discourse (Foucault, 2004).
4. Perturbation and responsethe Water Summit In 1997, the New Labour Government sought to introduce regulatory changes including some that were related to sustainable development. This opened up new areas of discourse, such as social issues, and brought greater prominence to others, such as environmental issues. It included the need within the regulatory system to address issues of poverty, aVordability and social exclusion as well as the particular problems of disconnections and payment diYculties (Dickie, 1996). This reXected the media and public interest in water related public health issues generated by campaigns of the early 1990s (Page, 2002) which involved diverse and highly critical participant groups including amongst others Age Concern, the British Medical Association and, Friends
of the Earth. At the same time there was growing public anger over the morality of the economic behaviour of the water companies, their excessive proWts and executive pay on the back of rising prices to the consumer (Bakker, 2003). Executive salaries alone, excluding other contributions such as pension allowances, had risen on average by 350% whilst between 1974 and 1997 water charges had increase by 4.7% p.a. and household sewage charges by 10.5% p.a. (Ofwat, 1998). On top of all this, and perhaps in the publics eyes the straw that broke the camels back, was the drought situation commencing in 1995, most notably the Yorkshire drought. As Bakker (2003) observed, this was an extreme climatic set of events and the most negative public relations episode faced by water companies since privatisation. It increased the publics perceptions of mismanagement of resources and as indicated below resulted in new powers for the environmental regulator to regulate and intervene and a tightening of the regulatory framework in general (Bakker, 2000). The exercise of arms-length regulation far from removing water services from the political arena had the eVect of bringing these conXicts between free-market economics, social equity and sustainability to centre stage. There was a perceived need to reform the regulatory framework to address the lack of transparency and trust between regulators and Wrms (Dickie, 1996). The rhetoric was one of addressing the chaotic state of the utilities industries and to get the right economic structures to enable industry to do its job better. If this were done there would then be greater and more equitable beneWts to society as a whole (Dickie, 1996). The underlying, though unstated contention was that the existing order of things was unable to cope with its own inherent tensions as its internal self-discipline and external regulatory practices had failed to address key emergent areas of conXict and sustainability. Such a complex and institutionally fragmented system has no innate propensity towards proactive and reXexive system transformation (Hay, 1999). Hay (1999) argues that the agencies of the state do not respond directly to systemic contradictions, but rather to the constructions and narratives placed on such contradictions. In other words they react not to the crisis itself but to the discursive construction of the crisis. This serves to emphasize the importance of the events that led up to and provided the impetus for the Water Summit. Stakeholders may use the opportunities aVorded by the emergence of a crisis discourse to challenge and conceptualise new regulatory routines (Ward, 2003). This, it has been argued, provides the impetus for the emergence of new policy paradigms (Hay, 1999) and represents a discontinuous shift in regulatory discourses opening up the possibilities of change. The water supply situation in the country reXected in the media was a cause for concern (Haughton, 1998) and so within three weeks of coming to power the
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Government held the Water Summit. The drought between 1995 and 1998 exposed both management and regulatory failure and complacency in dealing with leakage and water resources. Clearly, regulation that did not adequately address the sustainability of the system had failed in its ability to reconcile competing interests of private capital with the needs of the state and civil society. These issues were placed within a discourse of sustainability. like the Water Summit that Prescott put together shortly after Labour came in, well you can take it two ways; on the one side you could say it was a nice example of environmental and sustainable development thinking and on the other hand you could say it was an easy target. You had all the fat cat water companies, they were an easy target and politicians had nothing to lose by putting the boot in fairly forcibly on that one. The outcome was good from an environmental and sustainable management perspective there were some serious shifts in attitude. (Environment Agency Informant A) The Water Summit signalled the introduction of a raft of measures that were to change the regulatory assemblage (practices and objectives) and it was a tacit recognition that there were valid concerns other than economic objectives. The Water Summit provided an opportunity to reshape the mode of regulation of the water sector, seized on by environmentalists that the previous emphasis on economic issues had not allowed. The reshaping allowed and legitimised the emergence of environmental sustainability and its regulatory discourse centred on coalitions of advocates through the widening of the policy gaps between Ofwat and the EA, which created the conditions of intercession for (environmental) stakeholder networks. The Water Summit marked the beginnings of a move away from an over-reliance on the psuedo-market mechanisms of the economic regulator. Regulation practices began to shift towards a more overtly policy-led approach as exempliWed by the introduction of social provisions, backing for environmental improvements, mandatory targets and performance indicators backed up by the threat of penalties. there were things like demand management, water resources plans, drought contingency plans, mandatory leakage targets, which in our view that linked with the agenda towards a more sustainable balance. (Environment Agency Informant D) There was also growing perception that the regulatory regime had been lax, in allowing substantial increases in economic proWtability that could not be attributed to productivity gains but rather to falls in capital costs (Saal and Parker, 2001). This proWtability was being achieved at the expense of social and environmen-
tal sustainability supporting the contention that reliance on market mechanisms does not always lead to socially acceptable outcomes. This point was highlighted by the National Audit OYce in its report on Leakage and Water EYciency (NAO, 2000) and it was this failure that allowed overt political/state sponsored intervention to bring about a change in attitude and approach of both water companies and the economic regulator. As a result the attitudes of regulators and water companies had to change: the regulator has been good at carrying on that process but it didnt start from the regulator and the regulator wasnt doing suYcient work with it. (Social Informant C) practically every one of the companies had taken their eye oV water resources and there was a need to refocus, so one of the reasons [for] doing annual reviews of the companies water resources plans is to keep it on their agenda. (Environment Agency Informant B) I dont think that they [water companies] would necessarily have done it [change of perspective] without the whole issues surrounding the drought and the Water Summit. I dont think that they would have done it without some of these issues having come to the fore, so it has been a mixture of incentive and regulation really. (Environmental Informant C) Water companies did not necessarily accept the need for change, especially with regard to leakage, symptomatic of a resistance to changes that would aVect the economics of their operations. with leakage we saw a situation where the government stepped in with the Water Summit in 97 and as one Managing Director put it at the subcommittee meeting, companies had to be dragged kicking and screaming (Social Informant C) The onus to operationalise the Water Summit measures was placed on Ofwat, after consulting with the EA. A change in attitude was brought about by a carrot and stick approach. The stick being the possibility of economic sanctions and the carrot extra funding for the investments. Moving towards sustainability was therefore rationalised in economic terms, as the DG of Ofwat said in the closing sentence of his speech to the Water Summit Save the environment and save your pocket! (Byatt, 1997). The more hands on approach to policy and regulation of the water sector as well as an emphasis on social issues was an opportunity to give greater weight to environmental issues and by extension to sustainability. We need to be opportunist; the chances of getting things through to inXuence UK legislation are very
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thin. It often needs things like the Water Summit to make things happen. (Environment Agency Informant C) so far as the government views and the government statements are concerned there is a clear change after the 1997 election. Post 1997 the government is giving higher priority to the social aspects of sustainable development; clearly there are some quite tricky things for water and what that means pricing and disconnections and so on. In a sense I think that it is going back to what sustainable development was supposed to be as enunciated at Rio. (DETR Informant B)
Ofwat has encroached into the Environment Agencys territory by enunciating the principle of customer aVordability, claiming that, only if the costs can be properly demonstrated to be less than the measured beneWts, should environmentally driven projects be Wnanced (contrary to the precautionary principle). The manner in which charges are passed on to the customer implied that aVordability as a narrow economic measure and not sustainability was considered an appropriate criterion for funding. Ofwat seemed to suggest that not only did customers want lower prices but that prices could be a lot lower if there were not a substantial environmental protection and improvement programme. Indeed, Ofwat stressed that in addition to its duty to ensure the Wnancial viability of water companies, it was there to protect customer interests. This can be taken as saying that prices arising from environmental investments were contrary to customers interests. In its 7th Report, the Environmental Audit Committee speciWcally censured Ofwat for demonising environmental and quality investment by portraying it as the key upward pressure on prices. This was contrary to the Aim of its sponsor the Department of the Environment, Transport and the Regions (DETR) which provides policy guidance to improve quality of life by promoting sustainable development. However, Ofwats discourse was progressively weakened by a number of factors one of which was paradoxically Ofwats own secondary duty towards conservation. Another was New Labours Water Industry Act (1999) which speciWcally sets out to control the social impacts of tariV increases on vulnerable groups as well as the DETRs policy guidance on meeting statutory environmental obligations. These helped to create space for a more sympathetic interpretation of environmental matters and sustainability obligations. This though suggests that there was a placing of matters such as environmental sustainability outside its formal regulatory process and locating it within a discursive environment. The greater prominence given to sustainable development by the government and the media created opportunities to challenge Ofwats interpretation of its duties to fund environmental expenditures. The EA saw an opportunity to secure greater environmental beneWts and actively tried to inXuence the outcomes; in AMP 2 as opposed to AMP 3 Ian (Byatt) managed to manipulate it so that the Tory government of the day accepted that he had a role to play in deciding how much environmental investment there should be. This time we set out down a totally diVerent course, which was to take it back to where Parliament had put it in the Wrst place, which was that the role of environmental improvement was the Environment Agencys, guided by
5. Price Review 1999 5.1. Changing discourses Early on in PR99 Ministers had signalled that they would take a closer interest in setting the economic climate than had previously been the case. In particular it had been indicated that there was an expectation placed on Ofwat by Ministers for lower prices. Companies (are expected) to meet their investment and service obligations without prices needing to rise in real terms, Wnanced through expected eYciency gains. Customers should be consulted about their views on the trade-oVs and priorities within this framework of falling prices. (Ofwat 1997) At the outset Ofwats attitude towards environmental improvements was in line with its treatment in previous price reviews. There were to be no major changes in approach to the funding of environmental improvements and no mention of making a contribution to sustainable development. Allowance should only be made in price limits for quality and environmental enhancements, whether statutory or supplementary, which have measurable outputs and deWned times for delivery. The Director intends to ask the Secretaries of State to provide guidance on the implementation of legislation to improve the quality of drinking water and the environment. (Ofwat, 1997) Thus only where cost eVectiveness of the beneWts of quality and environmental enhancements, whether statutory or not, could be quantiWed and demonstrated would funding through prices be allowed by Ofwat. Ofwat was intent on setting a condition of aVordability and serviceability as a guiding principle as a means to regulate capital expenditure programmes. As Helm (2000) commented
498
Ministers. The Director-Generals job was to make sure that the companies were adequately Wnanced to fulWl their obligations. It wasnt his job to determine what those obligations were to the environment. A very clear separation. He got politely told to F oV about costs and beneWts. (Environment Agency Informant B) The EA argued that the proposed environmental programme was not discretionary but was to meet statutory requirements arising from European or British legislation (EAC, 2000). At the same time other (inXuential) stakeholders, with interests in securing environmental improvements also became involved in PR99 and importantly were coming to be seen as legitimate stakeholders by regulators. This marked the emergence of networks or advocacy coalitions (Sabatier, 1998) with an alignment of mutual interests and discourses: One of our Wrst targets was to try to get Ofwat to recognise that they have got an environmental duty. That was a duty they did recognise they had but it was a duty that actually came secondary to their other primary duty. So one of the things we did was to seek legal counsel on their environment duty to try to illustrate to Ofwat the work that they arent doing and in identifying the Wnancing that the water companies need they have to make sure that water companies can Wnance their responsibilities to biodiversity. It wasnt just us doing that you had the Environment Agency and English Nature supporting that approach. (Environment Agency Informant C) The establishment of how the environmental programme was to be viewed and handled within the review process signalled an important shift in overall policy discourse indicating that aVordability was not the only criterion on which prices were to be determined. Through the emergence of what might be termed horizontal environmental advocacy coalitions, other groups of stakeholders were able to exercise a degree of inXuence over Ofwats deliberations on these matters. The advocacy coalitions drew their strength from the alignment and emergence of an environmental discourse, which the economic regulator was not able to counter. At the same time this opened a pathway for the wider involvement of civic society and as such, it may be considered to be a feature of an emerging mode of regulation. Within environmental matters emerging as a site of contestation, ministerial policy guidance played a key role in setting out what the governments expectations were and as a means of exercising power over regulators. Policy guidance by Ministers acted as a counter-weight to the inXuence and independence of the economic regulator while still maintaining the semblance of armslength regulation.
5.2. Environmental advocacy Raising the Quality (DETR, 1998) set out the Ministerial guidance on the over-arching social, economic and environmental policies forming the context of the Periodic Review, some 15 months after Ofwats Proposed Framework and Approach to 1999 Periodic Review. The indications are that the DETR document was the result of close collaboration with the Environment Agency: The key document was Raising the Quality the ministerial statement, which we put a lot of eVort into helping him [the Minister] write. We worked very hard with him and that was again an important statement by the new government, which had a diVerent view. The previous government only wanted statutory drivers and minimalist implementation. The new government would prefer to get closer to meeting European law but not spending rashly. (Environment Agency Informant C) It also represented the outcome of an on-going interaction between regulators and government agencies and with other stakeholders. The interactions provided a formal level of engagement, the quadrapartite process and was supported by discussions with the water companies and stakeholders such as consumer interest groups, industry associations and environmental groups and was a means of seeking consensus. we had agreed that unlike the previous round there would be a need to have a roundtable session every so often with Ofwat, ourselves, the water companies, DWI and English Nature but those would not get into decision-making, all they would do was to make sure that everybody understood where the game was and where the issues were and who was going to resolve the issues but it was not necessary to resolve the issues [there], which was quite important because that stopped DETR becoming a focus for decision-making and being put on the spot. (Environment Agency Informant B) The quadrapartite consultations provided a platform to discuss matters related to PR99 and it also acted as a pointer as to the greater prominence given to environment/sustainability related matters. Initially, English Nature 3 had not been included by Ofwat and indeed had been actively ignored by it. It was only under pressure from environmental interests that they were included since they were recognised as having a distinctive role to play quite separate from that of the EA (English Nature, 2000).
3 English Nature is a regulatory agency similar to the EA with responsibility for the conservation and promotion of nature and the natural environment.
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Stakeholders such as Water UK, environmental and other NGOs throughout the Price Review took a keen interest and active part in developments and negotiations. They sought to create space in which they could play a role through a variety of mechanisms and networks. Network membership and engagement in a common discourse was recognised as being a useful and legitimising tool that brings with it a greater ability to be listened to and to inXuence. Interestingly the lack of comment on the involvement of Ofwat with or in networks of stakeholders (from the interviews) suggests that Ofwat stood somewhat on the outside, as did the DWI and DETR. These bodies are at the heart of policy and the exercise of power, seeking to extend and maintain that power through instruments of inXuence and control. On the other hand there were some stakeholders who sought ways to exert inXuence over the same instruments by making use of networks and alliances. I am very keen to talk more with the water industry and I know that they are quite keen to talk to us about how you can alter regulation so it encourages them [water companies] to be less end-of-pipe focused. (Environmental Informant C) Some stakeholder groups such as the Wildlife Trusts and the RSPB managed to acquire a degree of power by actively raising their proWle through engagement in policy discourse processes and in doing so established themselves as legitimated and necessary stakeholders. As a result their input was sought on an individual basis by the quadrapartite members (EAC, 2000) and this in turn resulted in the mutual development and support of an environmental discourse. The relative success of the environmental NGOs in accessing and lobbying the quadrapartite members is reXected in their opinions of this part of the process, for example Surfers Against Sewage commented We feel that the DETR had a far more open and inclusive approach to NGOs than in the previous Periodic Review. They also had an approach that was far more in keeping with the spirit of the EC legislation. There was a clear move away from a policy of minimum only compliance by the last possible date. (SAS, 2000) In contrast, others, within alternative advocacy coalitions such as that including Water UK held diVering views and sought to promote an alternative discourse: The Institution is concerned that the quadrapartite process has not been suYciently open and transparent. CIWEM suggests that the Audit Commission should obtain minutes and records of the meetings and establish how decisions were made particularly with reference to sustainable development. (CIWEM, 2000)
and, The industry, as a whole and individual companies input to the process by responding to consultation papers, representations at one or two general meetings, bilateral meetings with Ofwat, and through a total of fourteen highly detailed and complex information returns. Despite this the quadrapartite process did not work well because of a lack of realism about how much environmental improvement was genuinely compatible with reduced prices, and a lack of early consultation by Government on its proposals Water UK, 2000. Such views might be interpreted as reXecting the relative success of the various parties in having their points of view taken note of and incorporated into the decisionmaking framework. It is notable that Water UK, representing the views of the industry, was unhappy about the outcome of the Price Review, in particular they were critical of what they saw as a lack of transparency over how economic decisions were made, as well as what they perceived as interference with programme delivery and diVerence in approaches between regulators. Subsequently Water UK promoted an alternative paradigm centred on joined up regulation implying the need for better leadership from the state and greater transparency by all: We do not believe the process has balanced well the interests of customers and the environmental objectives, as well as our other stakeholders. We believe we can achieve more for our customers and for the environment given a better regulatory process. (emphasis added) (Water UK, 2000) Others disagreed with this assessment Personally, I think it is better to co-ordinate their positions, which is the job of Ministers in a way, transparently, rather than the old business where everyone was talking to the Minister behind somebody elses back. What some people often mean by joined up regulation is that they want their own way. (Economic Regulation Informant A) The EAC (2000) noted in its recommendations that; Ofwat must make further eVorts to involve the full range of stakeholders beyond the quadrapartite forum during the Periodic Review process in a more eVective way. The process of the Price Review is not an open or democratic one as there is a high degree of selectivity as to whom the recognised stakeholders are and the basis on which they are allowed to engage. This is evident in the way in which the discourses of the various stakeholders either resonate or create discord with the emergent oYcial discourses. However, it is evident that within the wider framework of regulation, consultation and inclusion of a wider polity, as part of a deliberative process,
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has become a feature of the process and exercises a degree of inXuence and control over decision-making. The outcomes of PR99 were determined as much by competing ideologies and representation of truths, with the support of institutional networks and coalition of interests as to any negotiated accord. we approached it as a chess game, a number of opponents, a number of things to achieve. We set up a subgroup of our board speciWcally to provide if you like a political sounding board and guidance so that I could be conWdent, as could my Chief Executive that we were going in directions and taking positions the board was comfortable with and could live with. It was our bit of business and it wasnt even friendly jockeying for position, it is a pretty ruthless game at the end of the day, which youre playing for billions of pounds of environmental investment. Id like to think that we won because Ministers took the view that it was their right to decide on the scale and pace of environmental improvements and not the Director-Generals. (Environment Agency Informant B) The perceived primacy of the economic regulator to make decisions was able to be eVectively challenged and decisions steered in a particular direction as a result of the emergence of a discourse of the importance of environmental goals and obligations. Through the promotion of environment centred discourses the formations of consent and power underwent a change as dominant economic discourses were challenged and resisted. It encompassed a wider polity that was drawn on for support and that also in turn sought to inXuence policy outcomes. The wider polity included those such as consumer, environmental and social groups with a direct interest as stakeholders as well as those in the background who contributed to the generality of dialogue such as commentators, the media, policy think tanks and academics. Throughout the review the water companies often characterised themselves as being caught in the middle between such competing policy discourses with their support alternatively enlisted by one side or the other. In their own eyes, they were the honest practioners and professionals caught in the middle. The Environment Agency is looking for a strong environmental gain which we would support by and large. Similarly we want to keep billing to the right level; we want to keep customers happy. So we kind of tend to be in the middle of all this, we try and inXuence where we think it makes sense to inXuence and there is an opportunity to do so. (Water Company Informant E) We cannot have a shambles that we had the last time which had the agency saying here is the NEP
(National Environmental Programme) programme, Ofwat saying we are not accepting most of that and the companies stuck in the middle and Ofwat saying dont do it and the EA saying we are expecting you to do it. (Water Company Informant N) This is not an entirely fair reXection as the water companies are not exactly neutral or powerless as it is in their interests to have large capital works programmes, which maintain the Xows of proWts, a fact that has not gone unnoticed by the regulators. They also have recourse to other ways of inXuencing the policy debate through their individual actions and performance, collective industry actions as well as through their own networking and consensus building with stakeholders especially environmental NGOs.
6. Discussion The events considered have been approached from the perspective of: what do they tell us about changes in the mode of regulation by viewing them as arenas within which discourses occur. This has allowed a number of developments in the regulation of the water sector through the period of 19972001 to be identiWed. Firstly, both the mode and dominant discourse of regulation in 1997 can be characterised as classically neoliberal in so much as the focus of regulation is economic and rationalist centred. This was challenged to the extent that sustainability was no longer a peripheral matter but has become itself a focus of regulation albeit framed in econocentric terms. As Cocklin and Blunden (1998) observed: The sustainability discourse is part of the continual re-regulation of society, economy and environment, and consequently the (re)production of space. While sustainability has become incorporated into the many discourses of our contemporary society, it is being regulated and articulated primarily through hegemonic discourses that prevail at the national level. Thus the customer is no longer characterised as a utility maximising unit intent on receiving price cuts at the expense of the environment but rather as a more complex individual concerned for and expecting environmental and social improvements. The incorporation and articulation of these concerns owes much to active stakeholder involvement and claims of representation of customer/consumer interests by often disparate groups. Consultation, deliberation and claims to representation of views, mostly at arms length from the individual citizen, emerged as an important legitimating touchstone for the whole process of regulation that highlights its
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discursive components. It did however take place outside of the formal arenas such as the quadripartite process, essentially closed to outsiders, relying on their engagement directly with insiders such as Ofwat, the EA and ministers. That the discursive nature of regulation came to the fore was in part a consequence of the overlapping of institutional actors and the space created for external stakeholders. This adds an extra dimension to any economic analysis of water prices but is something that water companies and regulators have yet to fully engage with or indeed have any clear idea how to incorporate or accommodate equitably. This paper has argued on the basis of discursive empirical evidence that there has been a shift in material practices of regulation with respect to (environmental) sustainability, something that can reasonably be challenged as just one interpretation put on the evidence presented. However, there is a degree of support in the various estimates and allowances of environmental and quality improvement capital expenditures, as illustrated below (Table 2). There is a marked increase in the amounts estimated and allocated during the period of PR99, which when coupled with the discourses presented here would appear to indicate at least some adoption of sustainability friendly policies. However, the downward adjustment to 7.6 billion appeared to some as a somewhat arbitrary action on the part of Ofwat, almost as if it had to have the Wnal economic say on the matter. Although somewhat of a simpliWcation, much of the debate concerned itself with two issues. Firstly, it focused on how much prices could be reduced, considering aVordability and other economic rationales. Secondly, and conversely, it concerned how much would prices need to be increased to accommodate the proposed environmental programme. As might be expected this provided a degree of polarisation of views with Ofwat and its supporters in one corner, the EA, DETR and environmental groups in the other and water companies and others sitting on a fence somewhere in the middle. In the Wnal determination there was an average initial price reduction of 12.3% as compared to the initial forecast of 13.7% and average price limits of 2.1% for each of the Wve years 200005 compared with 2.9% for the draft determination. Given the early ministerial
statements that prices would fall the key point was then by how much and the relative impact of environmental sustainability as an upward driver on pricesas per Ofwats demonisation of the environment as the EAC put it (EAC, 2000). Through the Water Summit and PR99 environmental sustainability has assumed a larger role in regulatory procedures and practices. The emphasis has shifted away from a discourse of sustainable businesses and prices to one that seeks to balance business, customer, environment and society. However, this is still Wrmly rooted within a paradigm of meeting of statutory requirements and a focus on eVects rather than causes. The amount of 8.5 billion for example contained no allowance for discretionary expenditure on the part of water companies, which arguably could have been included given the downward revision to 7.6 billion on the part of Ofwat. A point highlighted by the Wildlife Trust at the time in its reaction to the Wnal determination of PR99. Sustainability issues continue to be represented and debated through a framework of technological and economic language. A positive outcome was that issues that previously would have been seen as technical or managerial and therefore to be the business of areas of expert knowledge, have been rebranded as sustainability issues open to a wider polity. The Water Summit prepared the ground for an extension of environmental and socially centred controls, the realisation and consequences of which were debated primarily in economic terms especially through the PR99. This challenged not only where the balance should be between economic and environmental sustainability but also extended the scope of the regulatory gaze and opportunities for participation in terms of what is regulated and who regulates whom. Critically it may be said that in spite of these changes sustainability as conceptualised within the mode of regulation is about meeting obligations whether these are environmental, social or economic rather than promoting sustainability. As Helm (2000) stated it is hard to reconcile the outcome as consistent with the governments sustainable development policy as it appeared to be a process which sought to reach a largely preset answer given ministerial statements indicating that both environmental improvements and a 10% price cut might be the outcome.
Table 2 Estimates of capital expenditures for environmental and quality improvements for the period 200005 Estimate Ofwat, allowance 1994 (Ofwat, 1994) Ofwat, revised estimate 1998. (Ofwat, 1998a) DETR/EA, estimate 1998 (DETR, 1998) Ofwat, allowance 1999 (EAC, 2000) Ofwat estimate for 200509 environmental and quality programme indicated in PR99 (Ofwat, 2004) Amount 4.1 billion 4.2 billion 8.5 billion 7.6 billion 5.5 billion Comment Included in PR94 Adjusted for actual performance and allowance for additional quality obligations since 1994 Estimated requirement to meet quality obligations Amount adjusted for eYciency savings and the downward revision of the cost of capital, PR99 PR99
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There has been an increasing importance of networks and an opening up of regulatory and institutional space and material practices, especially horizontal interactions, reXecting a broadening of the role of regulation to include social and environmental sustainability objectives. Practices of stakeholder consultation and discursive deliberation especially with respect to the environmental matters and how they might be addressed have been incorporated and are now embedded into the social practices of regulation. As such this supports the point made by McCarthy and Prudham (2004) concerning the conjunction of environmentalism and neoliberalism. It suggests that there has been a redeWning of the hegemony that underpins the regulatory consensus in the water industry of England and Wales. There has been an evolution and integration of a variety of mechanisms for policy learning for example through the expansion of mechanisms of distanced democratic accountability e.g., parliamentary committees, an increasing role for civil society institutions through deliberative consultation processes and, the acceptance and inclusion of networks or advocacy coalitions. All of which may be seen as an expansion of regulatory mechanisms which now incorporate a discursive materiality based in part on interpretations of the measured and reported state and performance of the sector economically, socially and environmentally. However, while there has been an increase in deliberative mechanisms the formal powers to decide have not altered. A further development has been a move away from minimal state intervention at a distance and the predominant use of markets towards a situation where the state has reserved for itself greater powers of guidance and direction. The Water Summit and through it the governments articulation of its concerns heralded moves towards a greater degree of direct guidance. PR99 saw the use of Ministerial Guidance as a powerful tool through which policy objectives were articulated, providing a means of circumscribing the Weld of discretion that regulators could exercise and in the process a reversal of Ofwats hold, through the quadripartite process on the environmental programmes. This allowed the development of space for the deployment and contestation of the discourses of the various actor network policy coalitions. Given the ability of the water sectors institutional framework to respond to changes in external and internal forces and to stabilise the accumulation system it is suggested that there is an emergence of a distinctive sectorally based mode of social regulation that is able to respond to sustainability without compromising the market-based system that provides it with its core values. The water sector while adopting sustainability as a key element of its functioning has not adopted the concept that economic sustainability should be embedded within the social and environmental spheres of limits, equity
and justice. Rather, the water sector as a whole has adapted environmental issues to Wt within and be addressed through the lens of a particular conception of economic sustainability. Finally when considering the potential implications that the emergence of this particular mode of regulation might have for other countries where similar privatisation paths have been followed it is important to note some of the peculiarities of the present situation. Ofwats power over the licenses that permit companies to operate, its ability to determine the companies may charge, and its oversight of company performance and expenditures, all place it in an extremely powerful position within the regulatory framework. Hence the importance of infrastructure investment and associated discourses as a means of securing agreement over prices, which might also be considered as forming part of the mode of social regulation. An important implication of this is that it gives the regulatory bodies an overarching constraining inXuence on companies behaviour and compliance that has been notably absent in other countries where similar forms of privatisation has been exported. The paper has also indicated the power of external perturbations to provide the catalyst to bring about changes in regulatory modes, such as the drought situation referred to. Such developments are by their nature unpredictable, locally signiWcant and lead to particularised responses, further diVerentiating modes of social regulation through accompanying discursive processes that (re)form events. Modes of social regulation are far from static and need to be interrogated through an understanding of the formal and informal powers of the regulatory actors and the discursive historical trajectory that relate to the particular regime of accumulation being considered.
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A. Cashman / Geoforum 37 (2006) 488504

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