Ofwat Chief Executive Cathryn Ross has said that the bigger challenges to greater collaboration in the water sector are about mindset and getting over the ‘water company knows best’ or ‘not invented here’ culture.

Speaking at the Institute of Water annual conference this morning, Cathryn Ross identified innovation as a main area of opportunity for collaboration across the wider sector – not simply the regulated water and waste water companies.

Innovation, one of the four key themes for Ofwat’s upcoming Price Review in 2019, underpinned the three other themes of customer service, resilience and affordability.

She went on reject the idea that increasing competition was a challenge to collaboration

According to Ross, great customer service requires innovation in the products and services that companies offer to their customers, in the channels used to access the services and to communicate with customers more broadly. Commenting on resilience, the Ofwat Chief Executive said:

“Resilience requires innovation too. There is no way, in the face of climate change and population growth that water and waste water companies can keep doing things in the way they always have and expect to continue to provide the standards of service provision we have come to expect.”

She rejected the idea that great customer service and resilience would always cost more – but acknowledged the potential for “credible business cases for incremental improvements in customer service and resilience that could well involve additional investment.”

However, Ross warned that she could also see an increasingly challenging environment for a lot of customers - facing inflation that exceeds wage growth – saying that the only way to square the circle was by delivering a step change in efficiency.

Acknowledging that she “completely accept(ed) that there had been regulatory barriers to innovation in the past, Cathryn Ross said Ofwat’s move to an approach based on outcomes and totex had really helped. Ofwat’s encouragement for multi-period outcomes also provided scope to deal with longer pay back periods that may be merited by some innovations.

Rejecting the idea that the five year price control periods were a barrier to innovation, Ross said:

“… the water companies have easily enough certainty over what they need to do and over at least the vast majority of the costs we will allow them to recover from their customers to plan sensibly over the long term - they have a good deal more certainty than companies in competitive markets where there is more innovation.”

Collaborative working reflected the reality of the sector - water and wastewater services are the product of complex systems and robust, efficient solutions in the sector required systems thinking.

Ross said collaboration could also reduce risk - if lots of companies in the sector are all trying to solve the same problem, redefining the scope of the problem across a wider area or set of activities could lead to a different feasible set of options for its solution. Pooled funding, shared risk and reward could change the economics of some innovations dramatically.

Ofwat's Chief Executive  concluded by saying she wanted to debunk the idea that the greater use Ofwat was making of markets in the sector was somehow at odds with collaboration.

Ofwat was looking to encourage the development of markets for water resources and bioresources in PR19 to establish markets so potential buyers could meet potential sellers, and as a result have a wider set of options about how they provide their services.

The regulator also wanted companies to consider testing the market for network projects of more than £100 million whole-life totex to see if there are better, more efficient, innovative ways of delivering them, she said.

“I know the extent to which we have competition in the sector today is greater than before, and I know that people are getting scared by the competition law risk. And I'm not going to stand here and say ‘don't worry about it’ because I would expect to see a healthy concern.”

She summed up by asking delegates not to view markets and competition as barriers to collaboration, saying they may well find that markets reveal a whole different set of potential partners and opportunities for collaborative working.

“I think the bigger challenges are about mindset. About getting over that ‘water company knows best’ or ‘not invented here’ culture. And understanding that in giving up a degree of control you could benefit from a wealth of fresh ideas and new solutions.”