Trust in water 1

Exploring the Water Challenge: An Ofwat perspective

Stephen Beddoes, Senior Analyst

January 2016

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Our duties:

protect the interests of consumers,

wherever appropriate by promoting

effective competition

secure finance for efficient companies

so that they can properly carry out

their functions

further the resilience objective to

secure the long-term resilience of,

water companies water supply and

wastewater systems and to

secure they take steps to enable them,

in the long term, to meet the need for

water supplies and wastewater

services

Ofwat’s role within the UK

Government

Defra

Ofgem

Othergroups

NGOs

Europe

Regulators

Environ-ment

Agency

UNECE

EWP

EU

CCWater

Academics

DWI

NaturalEngland Cabinet

Office

WAG

NaturalResources

Wales

OfwatTrust in water

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UK Water sector structure today

The water industry in England and Wales

In 1989:

Privatisation of 10 Water Authorities, making a total of

39 regional vertically integrated monopolies

Today:

We regulate 33 licensed companies:

10 regional monopoly water and sewerage companies

8 local water only monopoly companies

5 new appointees

10 water supply licensees

Successes:

Private sector investment – >£125 billion in real terms

Better and more stable infrastructure

Improved standards of service

Greater environmental and drinking water compliance

Consumer bills 30% lower thanks to economic regulation

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What kind of regulator do we aim to be?

Relationships-focused

– sector stepping up,

taking responsibility

for relationships,

being open, honest,

fair and transparent.

Outcomes-

focused – focus

on the things

that really matter

to customers,

the environment

and society now

and in the future.

Using all the tools in our

regulatory tool kit – to shine a

light on issues and provoke

debate.

Proportionate and

targeted – focusing our

intervention where it is

most needed. The sector

providing assurance. We

step in where necessary

to protect customers.

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…but challenges mean the status quo is not an option

Achieving affordability and sustainability in the context of these challenges is key.

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Ofwat doesn’t hold all the answers – coordination is a key challenge

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Photo © Highways Agency

Taking a long-term view is essential

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Innovating for the long term

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Photo © South West Water

Working together

Ofwat is the economic regulator of the water sector

We do not regulate the environment

We cannot tackle the challenges alone

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Photo © Highways Agency

Markets have an important role to play in driving resilience

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Photo © Environment Agency

Stretched water resources and rising population

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Photo © Getty Images

Resilience is not possible unless customers play an active part

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Water 2020 in summary

We plan to build on our 2014 price review approach,

which kept bills down and drove service up through...

Smarter water usePotential benefits of £1

billion from encouraging

water trading – better

sharing of resources across

company boundaries

benefits customers and the

environment

Releasing power from

wasteTreated sewage produces

sludge which can create

energy and other things.

A sludge market could

unleash more sustainable

energy generation and

lower bills

…but stability in this sector is vital so certain changes will

require a managed transition. That is why we are continuing

to protect investment made (the RCV) as at the end of 2020

Customer engagement Conversations with a quarter

of a million people

Outcomes for customers522 tailored performance

commitments

Targeted interventionStepped in to reduce time lost to

supply interruptions by a third

Encouraging innovationTotex led to new approaches and

helped deliver £3 billion savings

That won’t be enough if we are

to meet new challenges...

Stretched water resources

and rising population Forecast 20% population rise over

20 years, much of it in drier areas

Protecting environmental

water quality Four out of five water bodies do

not meet appropriate

environmental standards

Developing and maintaining

resilienceServices and systems – such as

financial and ecosystems – need

to be able to anticipate trends and

withstand and recover from shocks

now and in the future

Tackling affordabilityBills will drop 5% in real terms by

2020, yet one in five customers do

not feel their bill is affordable

...and if we carry on regulating

the same way, we will not drive

the efficiencies we need

-£392000 to 2005

Value of

efficiency

savings (bill)

(2012-13

prices)

-£182005 to 2010

-£112010 to 2015

When we set prices in 2019, we propose to keep

what works well, while making changes to help the

sector meet the long-term needs of customers,

society, the environment and investors…

A better, more legitimate

measure of inflationBills and company returns are

linked to RPI inflation. A phased

move to CPI will help maintain

trust and confidence and reduce

bill volatility

Better customer conversations

and a long-term approachEncouraging companies to move to

a deeper understanding of what

customers want, including over the

short and long term

Photo © Getty Images

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Photo © Mick Knapton

Reflections

What are the services that matter to customers and

society?

How can the needs of future customers be accounted for?

How can we focus service providers on the long term?

How can markets be best used to inform, enable and

incentivise more sustainable, efficient approaches?

How can regulation inform, enable and incentivise this?