Annual reports and accounts 2010-2011

Since privatisation 22 years ago, the water and sewerage sectors in England and Wales have substantially improved the services they deliver to consumers and the environment. Services are safer, better and more secure. For three-quarters of households, their water and sewerage bills still account for less than 3% of their annual disposable income.
Our regulatory framework has contributed significantly to this success, including giving investors and lenders the confidence to invest more than £90 billion in the sectors. And we have challenged the monopoly companies to improve on all aspects of the services they provide.

But there is no room for complacency.

There is now broad agreement that the challenges that lie ahead are considerable. These include climate change, population growth and – for a small but important minority of customers – affordability concerns. Overcoming them will require us all to be more innovative, flexible and sustainable in what we do. And we cannot wait. This is a long-term industry and the decisions we take now will not only determine plans for the next five years, but also influence the services we receive decades from now. This is why – last year – our Board published ‘Delivering sustainable water – Ofwat’s strategy’, which set out our long-term approach for regulating the sectors.

Delivering sustainable water and sewerage services now and for future generations means putting the value of this precious resource at the heart of our decisions. It means providing incentives for the right investment in the right place, at the right time for the right price. And it means smarter regulation – reducing the regulatory burden and targeting our resources where we can make most difference. This is why we launched our future regulation programme of work during 2010-11 – to review fundamentally why and how we regulate. We want to build on the achievements of the sectors and deliver a regulatory framework that enables continued success.

There have been developments in the wider environment in which economic regulators work that will affect Ofwat. We have seen the publication of principles of economic regulation by the Department for Business, Innovation and Skills (BIS). And the Government is also reviewing the competition and consumer protection frameworks. Close to home for Ofwat, there have been a number of independent reviews of aspects of the water and sewerage sectors in recent years – on flooding (‘Pitt’), competition and innovation (‘Cave’) and charging (‘Walker’). Most recently, there has been a review for the UK and Welsh Governments, led by David Gray, of our responsibilities and those of the Consumer Council for Water (CCWater) – although this has not yet reported.

We welcome these reviews and the fresh thinking they bring. We have something to learn from all of them. And we will strive to remain flexible and responsive to the changes we need to make, while preserving the independence of our regulatory decisions.

In the coming year, there will be changes in the Ofwat Board. I will be stepping down as Chairman, along with a number of my nonexecutive director colleagues, as our terms of office end. We will leave confident that we are handing over a vibrant and effective organisation to a new Chairman and Board. In the meantime, we continue the important work that is being carried out.

As this is my last contribution to Ofwat’s annual report, as Chairman I would like to put on record my thanks to all those seeking to serve the interests of water consumers over the short and long term. They include:

  • the regulated companies and new entrants;
  • CCWater;
  • fellow regulators;
  • Government departments;
  • interest groups; and
  • individual commentators and advisers.

I particularly want to thank my colleagues on the Ofwat Board and all Ofwat staff. Together, you have made my last 11 years – first as Director General, then as Chairman – both stimulating and constructive. We have achieved a great deal together. And I am confident that the sectors will continue to go from strength to strength in delivering sustainable water and sewerage services now and for future generations.

Philip Fletcher