Ofwat has today published a new strategy to help transform water company performance, meet long-term challenges and embed public purpose into the sector.

The strategy has been developed after a year of listening, during which time Ofwat spoke face-to-face with more than 250 different organisations and members of the public.

Time to act, together: Ofwat’s strategy focuses on how Ofwat can help deliver the things that matter most to people, including

• improving the environment
• securing affordable bills
• delivering resilient, reliable and high-quality services
• seeing companies act in the long-term interests of society and the environment.

The water sector regulator has set three strategic goals:

• to transform water companies’ performance for customers
• to drive water companies to meet long-term challenges through increased collaboration and partnerships
• for water companies to serve a wider public purpose, delivering more for customers, society and the environment.

Ofwat said that in meeting these goals, it will need to evolve and build on its existing work. This will include setting long-term targets for the industry, driving innovation, listening more to customers, encouraging collaboration and forming partnerships, using data to build insight and making the environment integral to all that it does.

Commenting in the strategy document, Ofwat says:

“We will use all our existing regulatory tools and develop new ones, including building our influence, data and insight, to achieve these goals.”

“A laser focus on driving up performance and efficiency now will put companies in a better place to face the challenges ahead.”

“To meet our goals we will use a wide range of tools and approaches – both formal tools such as new licence obligations and soft tools such as influencing and convening.”

Strengthening Ofwat presence in Wales

Ofwat is also planning to strengthen its presence in Wales where it intends to set up an office to make sure it is properly participating in Welsh policy discussions, and making the best use of the expertise of stakeholders and regulators in Wales. The regulator emphasised that it will continue to regulate in a way that reflects any policy differences, including the different policy steers from the UK and Welsh Governments in relation to the use of competition and markets.

The strategy highlights Ofwat’s desire to be more successful in improving all dimensions of water company performance and to see an increase in the pace and level of change. However, it describes this goal as challenging, commenting:

“Performance has stagnated in some areas, is patchy across companies, and customer and society’s expectations are changing. Service in other sectors is increasingly personalised and digitally enabled, and the water sector lags behind. There is justifiable concern at current levels of pollution, and the legacy of poor corporate behaviour in some companies still impacts the legitimacy of the sector as a whole.”

Strategy highlights innovation as crucial for meeting challenges the sector faces

Ofwat’s strategy sees innovation as crucial for meeting the challenges the sector faces in a cost-effective and sustainable way. However, it says there remain “significant untapped opportunities” for the industry to work with each other, the supply chain and those in other sectors to trial and adopt new practices and technology to transform performance.

According to the regulator, existing initiatives need to be streamlined so that efforts are complementary rather than duplicative, learning is shared, and technology that is proven to work can be easily adopted across the industry. Ofwat said:

“With that in mind, we have asked companies to consider whether they should establish a water centre for excellence – a collaborative hub for expertise, market knowledge and insight – and an innovation strategy for the sector.”

The strategy says Ofwat will reach a final decision on additional innovation funding later in the year and will also continue to reflect on the role regulation should play as enabler for innovation. Ofwat now plans to trial a one-stop-shop within Ofwat to provide informal regulatory advice to anyone looking to get innovations off the ground.

Ofwat will also do more to explore and encourage water resources and bioresources trading, competitive tendering for major infrastructure development (DPC), and the development of open bidding platforms for environmental services. Commenting on open data and making data freely available to everyone to access, use and share, the strategy says:

“In water, very few companies have introduced open access to their data sets. We will consider how open data could play a central role in our proposals to drive innovation.”

Meeting long term challenges

Looking to the future, Ofwat said it will work with governments and other water regulators to set a number of strategic long-term targets for the sector, together with creating a more robust approach to water resources planning and management. Ofwat will also seek to strengthen the industry’s approach to achieving long-term operational resilience in its assets.

Commenting on operational resilience, Ofwat says the industry needs to continually develop its approach to managing and operating assets if it is to meet the resilience challenges arising from population growth, flooding, drought and extreme weather. However, recent incidents of poor resilience to bad weather suggest that “significant improvements in operational resilience may be required.” The regulator plans to seek further information from companies in this area so it can devise an approach for driving improvements.

The strategy says Ofwat will also encourage companies to make more use of nature based solutions, including Sustainable Urban Drainage Systems (SUDS), and market mechanisms in key areas such as bioresources and ecosystem services.

Regulatory approach to 2024 Price Review and beyond

The strategy says that looking past PR19, Ofwat wants to learn lessons in shaping its approach in 2024 and beyond and how to best use it as an effective regulatory tool to achieve its goals.

This will extend to examining whether there are some areas of company activity that should be considered outside of the price review, for example large infrastructure investment that may cover multiple regulatory periods.

Ofwat has also flagged up its intention to explore how it could use stronger insight and reporting capacity in Ofwat to assess company performance and efficiency on a more regular basis during the regulatory period itself. The strategy paper says:

“Companies would be expected to develop business plans taking account of this insight, meaning that less intervention should be required in a price review. This may also allow the streamlining of the price review process for companies with a strong track record.”

The regulator also plans to increase its engagement with the industry by “getting out and about more so that we can see for ourselves the work that water companies are doing and learn from this and other sectors.”

Rachel Fletcher, Chief Executive at Ofwat, said:

“The challenges the water sector faces are profound: from climate change, to population growth; growing customer expectations, to meeting demand in areas where water is becoming scarce and the environment might be under threat. To secure and improve for future generations, we need to act now.

“Our strategy sets out an ambitious agenda of change for the water sector and describes how Ofwat will evolve and work differently. By transforming company performance, acting to meet the long-term needs of society and environment, and embedding a public purpose into water companies, we can deliver a legacy to be proud of, and one which improves life through water.”

Environment Agency Chief Executive, Sir James Bevan, commented:

“We welcome the launch of Ofwat’s new strategy for the water industry. Water is our most precious resource but the climate emergency and higher demand is putting it under increasing pressure.

“Everyone needs to play their part in meeting the challenges that lie ahead. We will continue to work closely with Ofwat to help transform the water industry for the benefit of customers and the environment.”

Click here to download Time to act, together: Ofwat’s strategy