Water industry regulator Ofwat has said it is not ruling out moving to an eight year price control and that there is “nothing magic” about the current five year AMP investment period.

Addressing a high level audience at a keynote Westminster Energy, Environment, and Transport Forum seminar in London yesterday, David Black, Senior Director of Water 2020 at Ofwat, said a number of valuable lessons had been learned from the 2014 Price Review. Major policy issues in PR19 would be addressed early on and not all loaded on to the back-end period of the Price Control, which had happened in PR14.

He also said that Ofwat saw a greater role for markets in the wholesale water sector value chain than is currently the case at present.

Commenting on the possibility of negotiated settlements between the water companies and their customers in future price controls suggested by Nick Fincham, Director of Strategy and Regulation at Thames Water, David Black said more work would need  to be done before a move to negotiated settlements in England would be considered and adopted.

Gabrielle Edwards, Deputy Director for Water reform at Defra, told the audience that the water sector could expect “significant change” and that decisions taken during the next year would set the direction of travel for decades to come.

On abstraction reform, she said the Government is looking to introduce legislation as soon as an opportunity becomes available in the upcoming legislative programme for this Parliament.

Commenting on competition, she said there was currently no definite timetable for introducing upstream competition – lessons would first need to be learnt from the introduction of retail competition in 2017.

However, she warned that increased competition was only part of the solution and that evolutionary change was required to ensure that the sector remained attractive to investors. The challenge was how to encourage more competition and retain investor confidence whilst keeping customer bills low.

Asked what the cut-off date would be for a final decision on whether the non-household retail market would go live on 1^st April 2017, Gabrielle Edwards said this would be made in early 2017.

Retail market - proposed margins are currently too low

Johanna Dow, Chief Executive at Business Stream, separately warned that new entrants needed to believe that when they came into the market they would be on a fair level playing field with existing companies in the sector. Key barriers to entry she identified included:

• An un-level playing field and the potential abuse of power by imcumbent companies
• Low retail margins
• Lack of standardisation between regions
• Risks resulting because of a lack of clear separation between wholesale and retail

Johanna Dow said that the 6% margin currently proposed for England was too low compared to Scottish margins which were 3 times higher. Customers would be looking for discounts of 10% and even 20% in order to switch suppliers – and it was not possible to deliver a 10% discount on a 6% margin, she added. However, she would not advocate increasing prices in order to offer greater discounts, a view supported by Nick Finch of Thames Water who said artificially raising margins would only create inefficient new entrants to the marketplace.

Lord Redesdale, CEO of the Energy Managers Association who chaired the event, made the point that the biggest retailer in water “may not even exist yet” and raised the interesting question of who would own the water meters themselves after de-regulation – the market operator or the retailer. He also raised the issue of who would own the data generated, pointing out that in the energy market the customers themselves own the data.

The Westminster Energy Environment & Transport Forum is holding the following keynote seminar on 3^rd November 2015 in London. Policy priorities for flood management in England - infrastructure, responsibilities and local strategies Click here for further information.