PN 01/16 Ofwat response to the Public Accounts Committee report on economic regulation of the water sector

Responding to the Public Accounts Committee (PAC) report published today, Cathryn Ross, Ofwat Chief Executive said:

“Holding companies to account and protecting customers is at the heart of what we do. That’s why we’ve made sure bills will fall five per cent by 2020 and companies will deliver more. We will carefully consider the thoughts of the PAC.

“PAC’s comments on gains relate to decisions Ofwat made six years ago. Since 2012, we’ve stressed that customers are having a really tough time, and stepped in to claw back £435m from companies. We then challenged companies to reduce bills further, resulting in £3billion of savings, which will mean bills fall 5% in real terms over the next five years. Service will continue to improve and we will have kept bills below inflation over two decades.

“Yet it’s no time for complacency. We’ve made changes so that companies become more transparent and resilient. And plan more changes to help create a sector customers can trust. That means making companies more efficient, more accountable and much better at responding to what customers want.

“In the last decade, we have clawed back £800m from companies’ shareholders, where they have let customers down. If companies don’t step up, we’ll step in.”

Background facts

  • The National Audit Office (NAO) report for the Public Accounts Committee, published in October, recognised the clear benefits already achieved through Ofwat’s approach, and how its initial proposals for changes respond to the challenges facing the sector.
  • The NAO report also recognised that in 2009, when Ofwat previously set prices, it was following the severe global financial crash and a time of significant uncertainty. Ofwat made a decision to shield customers from further turbulence by locking in financing costs then. Companies did subsequently make gains through unexpectedly low borrowing costs, as well as high inflation and changes in tax rates. The NAO recognised that Ofwat’s approach would have protected customers, and kept bills down, if borrowing costs – and changes in tax – had increased costs significantly.
  • Ofwat has announced plans for changes to how it sets prices in 2020 to get a better deal for customers.
  • In 2014, Ofwat set the lowest cost of capital ever set in the utility sector (3.6%). However, it has announced that it will review how it sets the cost of capital, including learning from other sectors and whether we need to change our approach to how we take account of the costs of debt and tax.
  • In the past Ofwat has challenged companies on efficiency by comparing the best water companies with those lagging behind. Ofwat has committed to learning from other sectors and looking beyond water companies to whether information from other sectors could help drive more efficiency.
  • Customer satisfaction with the value for money of water services has increased from 69% in 2009 to 75% in 2014.
  • By 2020, there will be significantly more support for customers struggling to pay their bills. Companies are putting in place measures, such as social tariffs, which are forecast to help an additional one million people.

Notes for Editors

  1. The Water Services Regulation Authority (Ofwat) is the economic regulator of water and sewerage companies in England and Wales. Its role is to help the sector build trust and confidence with customers and wider society. It exercises its powers in a way that it judges will protect the interests of consumers, promote value and safeguard future resilient water and sewerage services by allowing efficient companies to carry out their functions properly, and finance them.
  2. Media enquiries to Ofwat Press Office on: Benedict Fisher 0121 644 7642 / [email protected]