Ofwat’s Chief Executive has flagged up major changes coming to the UK water sector, including the need to move towards making greater use of markets.

In a wide-ranging speech at the Institute of Water’s annual conference, Cathryn Ross told delegates that with the sector facing bigger and more complex challenges than at any point since privatisation, regulation also needed to change to help the sector meet them,

Ofwat saw three big changes in the way that it regulates, she said. The first was the need to move towards making greater use of markets in the sector.

 “Not head to head competition, but rather the creation of places where buyers meet sellers and where transactions can take place. Markets that open up options, create scope for companies to choose, for example, whether they do things themselves or contract with others who may be able to do things better, more innovatively, more efficiently.”

The second big change is the ability to regulate in a different way – including deregulation -  as markets become more prevalent. The third change in the way Ofwat regulates is about a greater emphasis on market monitoring, regulatory reporting and assurance “because it would be wrong to create markets and then back off entirely.”

Ofwat would like to see more vibrant markets for sludge treatment and disposal

Ofwat would like to see more vibrant markets for sludge treatment and disposal which would enable water companies and others to develop sludge to energy facilities alongside other bio-waste to energy facilities and to choose whether to invest in new technologies within their own areas to serve their own customers, or contract with another company to do this.

Cathryn Ross said Ofwat also sees scope for different ways of new infrastructure being provided, commenting:

“ We see scope for new kit to be built, owned and operated by water companies of course. But we also see that it could be sensible for it to be built and/or owned and/or operated by others. Possibly other water companies, possibly JVs, possibly third parties.”

Commenting on the introduction of competition in the retail market for business customers in England next year, Ross said Ofwat was “well on with delivering” what it needs to deliver - the codes, including the customer protection code, the licences and the licensing process.

“We can already see evidence of some companies making big strategic choices about how they will play in the new market. Water Plus, the UU-SVT JV is a good example of this. As is Portsmouth's arrangement with Castle Water.”, she added.

Commenting on broader policy issues for the water sector, Ross said:

“the squeeze on the public purse….almost certainly means a continuing debate with water companies about where they might legitimately help to deliver some of the outcomes that customers and society care about, but which might in a different world have been delivered by the public sector.”….

“I can see very clearly a step change both in the breadth and depth of thinking in the sector about what are the outcomes that customers and society care about, about how those outcomes should best be provided, about where water companies might have a role, and what that role might be.”