Water industry regulator Ofwat has flagged up the potential for more changes in water company ownership with the launch of a new consultation on its forward work programme for 2016/17.
Ofwat said changes were likely as a result of the challenge of delivering price controls during 2015-20 and the opening of the non-household retail market in England to competition. Information revealed through the 2014 price review and which Ofwat will continue to reveal as it goes forward - for example through markets for new water resource and sludge treatment and disposal services – will also be key factors.
Introducing the consultation paper, Ofwat said:
“Over the past year, we have made significant progress towards our ambitious strategy, ‘Trust in water’. Maintaining that momentum is essential. Over the coming year we will focus on delivering results in those areas where we can make the most impact.”
The paper describes the regulator’s vision for the water sector as “an ambitious and complex task” which will take time to deliver and requires everyone in the sector to play their part.
Ofwat’s draft forward work programme for the coming financial year includes:
- finalising proposals for water trading markets and markets for sludge treatment and disposal, and the implications for regulation;
- setting out in more detail how Ofwat proposes to protect customers through the next price review in 2019 which includes considering the recommendations in the recent National Audit Office and Public Accounts Committee reports;
- carrying out critical work, alongside the UK Government, Market Operator Services Ltd (MOSL) and water companies, to ensure that choice for non-household customers is introduced successfully in April 2017;
- refining and developing work on monitoring frameworks, to ensure that Ofwat is able to assess company performance and resilience;
- ensuring that casework policies and process will support the delivery of good customer outcomes as a result of introducing choice for non-household customers in April 2017;
- continuing work to ensure that water companies understand and deliver in line with the needs of developers; and
- continuing work on the Thames Tideway Tunnel project to ensure good value for customers.
Priorities include work to support the effective development of payments for eco-systems services
The regulator has highlighted a number of strategic priorities for the coming year, including working with the Welsh Government, water companies in Wales and National Resources Wales to ensure that regulation supports the effective development of payments for eco-systems services.
Ofwat also wants to ensure it has the necessary skills, experience, systems, processes and culture in place to support its new strategy, with a particular focus on developing its delivery model for the 2019 price review and ensuring it has the capabilities it requires.
The consultation paper also provides some interesting comment on Ofwat’s traditional approach to its work, saying:
“We also recognise that our traditional regulatory approach was not best placed to help the sector meet those challenges. The value of our efficiency challenge using comparative regulation had been falling over time – from £39 off the average bill at the price review 1999 to £11 at the 2009 price review.”
On delivering value for money, since 2015-16 Ofwat has been part of the UK Government’s Comprehensive Spending Review (CSR). HM Treasury have confirmed Ofwat’s CSR settlement for 2016-17 to 2019-20, with the core licence fee for 2016-17 set at £22.5 million.
The regulator will also recover a further £1 million for its work on the Thames Tideway Tunnel and £1.97 million for opening the new non-household retail water market in April 2017. Work in these areas is funded from separate, ring-fenced licence fees, recovered from those companies directly affected by this work.
Applications to open for retail market licences by the end of June
Between April and June 2016 Ofwat is planning to open the application process for businesses to apply to become licensed as Water Supply and Sewerage Licensees (WSSLs) for the newly competitive non-household retail market in England and for individual customers to self-supply themselves with retail services.
The regulator will publish its initial and final findings of its review of the benefits of extending choice of water and wastewater retail services supplier to households between July and September this year.
Ofwat will also publish a policy statement on customer engagement for the 2019 price review and complete the first phase of its delivery model for the review by the end of June.
On the Tideway Tunnel, a rulebook setting out how the Infrastructure Provider’s licence will work will also be published by the end of June, to be followed by a stakeholders event between July and September to explain the Infrastructure Provider’s licence and the regulatory framework for the Tunnel.
Ofwat: looking to get the right balance between internal and specialist external resources
Commenting on its own costs, the paper says the phe progress made by Ofwat in 2015-16 has helped it to work in ways that are more flexible and reduce its costs. Value for money will be a key focus over the next five years to ensure Ofwat delivers maximum benefits to customers within its available resources. Ofwat is looking to achieve savings in its London accommodation costs during 2016-17, together with delivering savings by getting the right balance between internal and specialist external resources.
The regulator is also continuing to seek further value for money via membership of the UK Regulators Network and developing collaborative and more flexible ways of working with other sector regulators. Ofwat is currently exploring the practical steps needed to share, provide, outsource or jointly deliver services.
Looking ahead to next year, between January to March 2017 Ofwat will review the sector’s markets and consider whether further intervention, potentially through a formal market study, would improve customer outcomes in a target water and wastewater market.
Ofwat is working to a tight deadline in conducting the consultation which will only run for two weeks in total. Deadline for responses to the consultation, which was launched on 3rd February last week, is Wednesday 17th February next week.
The regulator said it the responses would be used to inform its plans and publish its final forward programme by 31 March 2016.
Click here to access the consultation paper.