Ofwat proposes changes to deliver for customers

29 January 2013

Ofwat has announced proposals to change the way it regulates the water and sewerage sectors to drive more efficient, customer-focused companies, and ensure more sustainable water use.

The proposals are part of its consultation on how it plans to set limits on how much water and sewerage companies in England and Wales can charge their customers from 2015 to 2020.

Regina Finn, Ofwat Chief Executive Officer said:

“We face new challenges and difficult choices about water. We are living in tough economic times, and household budgets are under increasing pressure. At the same time, it is getting ever harder to manage our precious water supplies as the population grows in areas where resources are already stretched, and our weather becomes more unpredictable.

“We cannot afford to stand still. We are changing our approach to help ensure we have modern, innovative, customer-focused sectors ready to meet 21st century challenges. 

“The new way we intend to regulate will give customers a greater voice, and help to address the problem that some of our water use is simply unsustainable. Currently half of our rivers are having damaging amounts of water taken from them, and little progress has been made in getting companies to share water.

“We are acutely aware that households won’t want to see any increase in bills that is not absolutely necessary. These changes will empower companies to rise to that challenge.”

Over the past 23 years £108 billion of investment has delivered significant service improvements, while without Ofwat’s challenge on efficiency bills would be around £120 higher. The regulator’s proposals look to build on that approach in three main areas: regulating for efficiency and growth, a focus on customers, and ensuring sustainable use of our water.

Regulating for efficiency and growth

Key proposals to drive efficiency, keep costs down, and thus support economic growth, include:

• ensuring access to low-cost financing, so as to enable continued investment in improving services while keeping bills down.

# Example: maintaining the inflation (RPI) link for ‘wholesale’ investment, such as building and maintaining treatment works and pipes, which represents 90% of the companies’ business.

• focusing on long term outcomes, so as to encourage innovative ways of working that can deliver services for less money, and with less impact on the environment.

# Example: rather than building an expensive treatment plant it could be cheaper and more sustainable for a company to meet environmental standards by working with local farmers to avoid pollution entering rivers in the first place.

A focus on customers

Key proposals to ensure an increased focus on customers include:

• giving customers an increased say in how their money is spent, and making companies more accountable for delivering what customers want over the long term.

# Example: creating independent Customer Challenge Groups to make sure companies are engaging properly with their customers and reflect their views in business plans.

• looking more closely at companies’ retail services - which includes activities such as billing and customer call centres - to drive better customer service and lower costs.

# Example: bringing the sector in line with others across the economy by not allowing the retail part of bills to rise automatically in line with inflation.

Ensuring sustainable water use

Managing water sustainably is becoming ever more challenging, particularly in the context of population growth and increasingly volatile weather.4 Key proposals to enable the sectors to manage water sustainably include:

• encouraging companies to become smarter in how they value and manage water, ensuring costs are kept down, and water is available where and when it is needed most, over the long term.

# Example: encouraging efficient water trading. This involves moving water, across company and regional boundaries, from where it is plentiful to where it is scarce. Currently only 4 – 5% of water is traded in the UK.

• protecting the natural environment by encouraging more sustainable choices about where water is taken from.

# Example: encouraging companies to source water from where it does not damage the environment, and penalising them if they take it from where it does. Currently half of the UK’s rivers have too much water taken from them.

The publication of Ofwat’s ‘Setting Price Limits for 2010 - 15’ consultation follows a two year period of engagement by the regulator on how it might change its broad approach to setting price limits. Ofwat will publish a final methodology for the next price review process in summer 2013. Decisions on new price limits are due at the end of 2014 and will come into effect in April 2015.

1. The Water Services Regulation Authority (Ofwat) is the economic regulator of water and sewerage companies in England and Wales. It exercises its powers in a way that it judges will protect the interests of consumers, promote value and safeguard future water and sewerage services by allowing efficient companies to carry out their functions properly, and finance them.

2. Ofwat’s consultation on Setting Price Limits for 2015 - 2020 - framework and approach is available on www.ofwat.gov.uk

3. Ofwat published its Future price limits statement of principles in May 2012, which followed its consultation on the framework for setting price limits in November 2011.

4. The year 2012 was the second wettest in the UK since records began. And four of the top five wettest years have occurred since 2000. Yet in April 2012 many parts of England had experienced the driest 18 months for over 100 years

5. More than £108 billion has been invested since privatisation – that is around £4.5 billion a year and roughly double pre-privatisation levels. Benefits of this investment include:

o leakage has been reduced by 35% since its mid 90s peak, saving enough water to meet the daily needs of about 12 million people;

o about 380,000 fewer customers are at risk of lower pressure – a reduction of 99% since 1990;

o in 2011 99.96% of drinking water in England and Wales met the standards required by the European Drinking Water Directive. This is comparable with the Netherlands – the best presently reported in Europe; and

o in 1990 only 78% of bathing waters in England and Wales met minimum standards, compared with more than 98% now.

6. Media enquiries to Ofwat Press Office on:

Benedict Fisher 0121 644 7642 / benedict.fisher@ofwat.gsi.gov.uk

Harbinder Babra 0121 644 7616 / harbinder.babra@ofwat.gsi.gov.uk

Simon Markall 0121 644 7696 / simon.markall@ofwat.gsi.gov.uk

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