Closer look at companies’ retail services and encouraging water trading alone will deliver £2 billion benefit
25 July 2013
Customers and the environment are set to gain major benefits, as Ofwat today confirmed changes to the way it regulates the water and sewerage sectors. These changes will make companies more efficient and customer-focused, and ensure more sustainable water use.
The changes follow widespread consultation and set out Ofwat’s approach to setting 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:
“There has been broad support for our plans which align with a culture that is changing in the water sector. We want companies to move away from ticking regulatory boxes and to concentrate instead on the importance of delivering for customers now and in the future including the environment. Our changes will drive a more efficient, dynamic, and customer-focused sector, developing long term solutions to meet long term challenges. This is good news for customers, the environment and the economy.
“It’s now time to deliver. Companies need to listen to their customers and come up with plans that show how they will meet the challenges facing the sector, such as affordability and long-term sustainability.”
Ofwat has committed to preserving core elements of its approach that make the sector attractive and able to access low cost financing that keeps customers’ bills down. Building on the stability and transparency of the regulatory regime, Ofwat’s changes include:
- getting companies to focus on delivering long term outcomes, giving them more scope in how they deliver; this will encourage innovative ways of working that can deliver services for less money, and with less impact on the environment; and
- giving customers an increased say in how their services are delivered and how their money is spent, and making companies more accountable for delivering what customers want over the long term.
Ofwat expects to see substantial efficiencies being delivered in the next five year review. And on top of that, independent analysis shows there are around £2 billion of combined benefits on the table for customers coming from the changes in our approach. This includes focusing more closely on the customer-facing activities of companies through separate price controls and plans to encourage companies to use water more efficiently through trading.3
Water trading involves moving water, across company and regional boundaries, from where it is plentiful to where it is scarce. Little progress has been made in the last two decades with only 4 – 5% of water traded in the UK. Ofwat’s changes to encourage water trading, as well as measures such as the focus on long term outcomes, aim to ensure companies become smarter in how they manage their water. This will help keep costs down, better protect the environment, and help the sector meet the significant challenges of managing water when there is increasingly volatile weather and population growth in areas where supplies are already stretched.
Full details of how Ofwat’s changes will drive more efficient, customer-focused companies and ensure more sustainable water use are available in Ofwat’s ‘Setting Price Limits for 2015 – 20.’
Its publication follows a period of more than three year’s engagement by the regulator on how it might change its approach to setting price limits. Companies will submit their business plans to Ofwat on 2 December 2013. Ofwat will make final decisions on prices by January 2015, with new bills coming into effect in April 2015.
-ends-
Notes to Editors
- 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.
- Ofwat published its consultation on its approach to setting prices in January 2013. It also published a consultation on how it expects companies to submit customer-focused business plans in April 2013.
- There is an estimated benefit of around £1billion from looking more closely at companies’ retail services – such as billing and customer call centres – to drive better customer service and lower costs. There is also an estimated benefit of up to £1billion from encouraging more efficient water trading.
- £111 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:
- leakage has been reduced by 35% since its mid-90s peak, saving enough water to meet the daily needs of about 12 million people;
- about 380,000 fewer customers are at risk of lower pressure – a reduction of 99% since 1990; and
- in 2012 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.
- Ofwat has also today announced it is seeking increased licence fees from the appointed water companies to help fund the 2014 price review, before reducing fees in 2015. Further details are available on www.ofwat.gov.uk
- Media enquiries to Ofwat Press Office on:
Benedict Fisher 0121 644 7642 / [email protected]
Harbinder Babra 0121 644 7616 / [email protected]