Water industry regulator Ofwat has today launched a consultation on the methodology for its forthcoming 2019 price review, the framework that regulates the price and service packages water companies must deliver for their customers for the 2020-25 period.

Today’s proposals, which are centred on four themes, challenge water companies to step up to deliver for their customers, now and in the longer term. As part of the price review process, Ofwat will be assessing water companies’ business plans to ensure that they understand what their customers need and also that plans are ambitious enough to deliver for their customers across the themes outlined.

The regulator said companies with exceptional plans would benefit from early certainty, public recognition and financial benefits. Where plans are not considered to be of sufficiently high quality and stretching, Ofwat will step in to protect customers’ interests.

The 2019 price review is aiming for a step change in the following areas in particular:

• Great customer service: demonstrating real responsiveness, reliability and innovation in the way in which companies interact with and service their customers;
• Long-term resilience ‘in the round’: including focusing on the long term, understanding and effectively mitigating risks and having in place the right people, infrastructure and processes, as well as robust finances and corporate structures, including at board level;
• Affordability: by improving efficiency and delivering water bills that are affordable for all, including those struggling to pay; and,
• Innovation: by working with customers, making greater use of markets and learning from best practice in other sectors to improve service and increase efficiency.

Where appropriate, Ofwat is planning to promote markets in PR19 to encourage innovation through water trading, the bioresources market and greater third party involvement in large projects through direct procurement.

Proposals include 14 core common performance commitments

Ofwat is also proposing 14 core common performance commitments, which apply to all water companies and cover what it says are the outcomes that matter most to customers, a number of which relate directly to water supply resilience. These will have common definitions to enable comparisons with other companies. The commitments cover:

• the quality and reliability of the water supply and wastewater services;
• customer service;
• the environment; and
• resilience and asset health.

The commitments include a new long-term resilience metric, developed with the sector, on the risk to customers of severe restrictions in a drought.

Common performance commitments for wastewater planning

Ofwat also wants the companies’ business plans to address wastewater planning where there is currently no statutory process in place, unlike water resource planning.

According to the regulator, as a result, long-term wastewater planning is not as advanced or transparent as water resource planning. Ofwat expects companies to demonstrate a thorough and comprehensive approach to long-term wastewater planning in their business plans.

The expectations are supported by proposals for common performance commitments on wastewater,  including:

• customer-facing performance commitments on sewer flooding;
• options for a commitment on wastewater resilience; and
• two additional wastewater-specific asset health commitments on:
• sewer collapses; and
• non-infrastructure asset failure causing pollution incidents.

Ecostems and biodiversity must be part of decision-making processes

The regulator will also seek to encourage the sustainable use of natural capital by water companies –meaning they will need to consider ecosystem resilience and biodiversity as part of their decision-making processes. Ofwat will take natural capital impacts and customer support into account when assessing special cost claims from companies. 

Announcing the consultation, Ofwat Chief Executive Cathryn Ross said:

“Water companies provide a genuinely vital public service to the customers and communities they serve. To deliver more of what matters to customers against these expectations and to keep bills affordable, companies will need to become much more efficient and innovative. Our plans will encourage companies to be ambitious in what and how they deliver for customers, the environment and society, now and in the future.  Water companies which perform poorly will find this a tough review.”

Deadline to submit responses to the methodology consultation is 30th August 2017.The regulator then plans to publish the final methodology in Mid December 2017 and  the water companies will submit their business plans to Ofwat in September 2018.

CCWater warns firms must not be rewarded "simply for doing their day job"

Tony Smith, Chief Executive of the Consumer Council for Water (CCWater), said: “We need to make sure the Price Review is focused on delivering the outcomes that customers really want to see, including acceptable bills.”

“Ofwat wants to strengthen the role of performance rewards and penalties which have the potential to benefit customers, but we need to guard against water companies being rewarded for simply doing their day job.”

“PR19 should also signify the moment that there was a clear step change in resilience so we can be confident the industry has safeguarded the long-term future of the services that matter most to customers.”

Click here to download the consultation document.