at a water company is a demanding role. Anglian Water’s Nita
Tinn, though, takes it all in her stride. Steve Hoare reports
East Anglia is the driest region in the UK. While not exactly the Sahara, four and a half million people in East Anglia rely on Anglian Water to provide them with clean drinking water. In doing so, they also rely on a legal team that has to maintain the tricky balancing act of pleasing a demanding regulator and making a profit.
Anglian Water Services’ head of legal Nita Tinn has worked at the company for 13 years. Prior to that she practised in the property litigation department at Nabarro Nathanson and before that was at the Prudential. Tinn was in charge of the litigation team at Anglian Water and graduated to the top job in 2002. She is also company secretary.
Tinn’s team consists of 10 lawyers split into commercial, dispute resolution, property and regulation departments. As well as Tinn, Anglian Water Services’ parent company AWG’s head of legal is Patrick Firth. “It’s like any regulated industry,” explains Tinn. “We’re tied up in red tape. We have a licence from our regulator, which governs the way we operate, as well as the Water Act. There’s masses and masses of regulation in our industry.”
Anglian Water’s property team is headed by Darrell Crittenden and deals predominantly with disposals and acquisitions of land. The dispute resolution team, headed by Geoff Blackwell, tackles commercial disputes and environmental prosecutions from water regulator Ofwat and the Drinking Water Inspectorate.
“We operate such a wide network of assets, we’ve got so many sewage pumping stations and treatment works and pipes, that inevitably things go wrong from time to time and we get prosecuted,” admits Tinn.
Blackwell’s disputes team is always busy. It had a significant win in a Lands Tribunal compensation case last year. The landowner claimed that he was going to build timeshares on some land in Lowestoft that Anglian Water wanted, making it worth £4m on paper. It offered £200,000. Traditionally, Anglian Water, along with many utility companies, has preferred to negotiate rather than issuing a compulsory purchase order when buying land. But the vast difference in evaluations meant that negotiations were hopeless. “I think the win strengthened our resolve to be more resolute in not succumbing to claims,” states Tinn. “It’s all too easy for a utility to be seen as a soft touch.”
The disputes team has handled several judicial review proceedings in the High Court, one of which went to the Court of Appeal. At any one time, it is normally working on at least one big dispute, with two or three others bubbling away in the background.
In 2000, Anglian Water began looking at the process of demerging Anglian Water from AWG. That was abandoned as being too high a risk, and in 2002 the company underwent a financial restructuring, which placed Anglian Water, the water and sewage business, at arm’s length from AWG. The restructuring reduced the cost of the company’s debt (debt finance is cheaper than equity financing). This took up nearly two years of Tinn’s time. The financial restructuring accompanied a securitisation package.
“We’re now a highly-geared water and sewage company with a financial ringfence around the company,” explains Tinn. “We operate as a separate company within the group, with our own board of directors, our own finance team, our own treasury team and our own legal team.”
Linklaters and Herbert Smith worked with Anglian Water on the financial restructuring. Traditionally, Herbert Smith had advised AWG and Linklaters had advised the team that was considering demerging in 2000. So for the restructuring Herbert Smith was used for corporate advice, while Linklaters advised on the finance side and on the securitisation.
Capital markets partner Julian Davies and corporate partner John Goodwin from Linklaters had handled the Glas Cymru deal for Welsh Water a year before and worked on a similar structure for Anglian Water.
“Our restructure was more complex,” explains Tinn. “I think what Welsh did was pay off the existing debt and just issue new debt. What we did was transfer the existing debt. We had a whole bunch of bonds, including US private placements, which all had to be transferred on to a common terms agreement, along with new debt and a security package.”
The Anglian Water approach also differed from the Welsh deal because the company retained an equity slice: £1.8bn of capital markets debt was transferred to the ring-fenced group and a further £1.72bn of new debt was raised. The new structure separated Anglian Water from AWG, the infrastructure management business.
But that is all in the past. The biggest issue facing the legal team, and indeed Anglian Water as a whole, is the periodic review of its pricing, which all water companies must deal with. Ofwat determines a water company’s pricing structure after the submission of a business plan. This is reviewed on a regular basis. Anglian Water’s regulatory team, headed by Geoff Ward, is in the midst of this process, which will decide how much the company can charge for the next five years.
“There’s a set of regulatory outcomes that we have to deliver: what the Drinking Water Inspectorate wants us to deliver in terms of quality, and what the Environment Agency wants us to deliver in terms of coastal and inland waters. It’s a huge consultation exercise,” explains Tinn.
It is not just the regulatory team that is involved in this task. The commercial team has put in place a series of framework agreements for Anglian Water’s capital programme which consists of the building and maintenance of the company’s plants and pipes.
“Those are all up for retender and relet,” says Tinn. “We’re looking at more of an alliancing structure to try to get better delivery and better prices, which would mean a more efficient way of delivering the capital programme to meet the ever increasingly tough targets that Ofwat is setting us.
“The way that the incentive regime works [is that] any efficiency saving you make in this five-year period gets knocked off next year. So our base cost then goes down. Because we’ve done very well and been efficient, the regulator says, ‘That’s very nice thank you, I’ll have that for the customers.’ We then have a new base and we have to get below that to make a profit. So it gets harder and harder each year.”
Which is exactly how it should be for a resource as vital as water. As The Lawyer went to press, Ofwat had cut back the business plans of all water companies. Tinn’s team was preparing a response before deciding whether to appeal to the Competition Commission.
“Our regulator is firm but fair,” concludes Tinn. “Regulation has developed. The industry was privatised in 1989, so it was a new game for everybody. In the early days, the water companies were leading and showing the regulator the way. The regulator has caught up and is increasingly more sophisticated in its approach.”
|Following the restructuring, Anglian Water and AWG launched a benchmarking exercise to put in place one firm to advise both companies on corporate, tax, banking, finance and securitisation.
With the restructuring a success, Linklaters was always in pole position; but Anglian Water was keen for a fair contest and invited 15 City firms to tender. Linklaters won out.
“We only outsource when we don’t have the capacity in-house, or we don’t have the skill and knowledge,” says Anglian Water legal head Nita Tinn.
Linklaters is called on to provide advice on pensions, Shoosmiths supports the in-house team on outsourcing contracts, while local Peterborough firms Hunt & Coombs and Greenwoods have been used for contracts and disputes work respectively.
Tinn is also in the process of putting in place a panel to deal with Anglian Water’s insurance claims.
Traditionally, its claims handler Willis has chosen Herbert Smith and East Anglian insurance specialist Prettys to deal with these disputes.
“If someone damages our pipes and we put in a claim, it will go to Willis in the normal way,” explains Tinn. “Rather than Willis just instructing a firm down the road, we’ll specify which firm it should instruct.”
The panel is likely to comprise one or two smaller local firms and one or two bigger firms for larger claims.
Head of legal/company secretary
Anglian Water Services
|Organisation||Anglian Water Services|
|Annual legal spend||£1m|
|Legal capability||10 lawyers|
|Head of legal/company secretary||Nita Tinn|
|Reporting to||Finance director David Hipple|