Yorkshire Water CEO Liz Barber has welcomed the Government’s strategic policy statement (SPS) for Ofwat, but has called for it to go further to enable the regulator and water companies to tackle a range of challenges with the scale and urgency required.

Responding to Defra's consultation on the SPS, which was published in July,  the utility company is calling for:

• Clarity on how Ofwat should manage trade-offs between competing priorities and its duties.
• Introduction of additional accountability, including a stronger and more frequent role for Parliament.
• Straightforward regulatory changes which could support partnership working as the norm, rather than the exception
• Streamlining of the regulatory process for water to increase public confidence and allow the sector to innovate.

Ofwat essentially “marking its own homework” in how it delivers on the SPS

The water company is calling for greater oversight of how Ofwat delivers on the requirements of the SPS and more accountability to Parliament, saying:

“There are many similarities between this draft SPS and the previous one. However, there is a question as to whether the outcomes that resulted from the last price review met the objectives set in the SPS. This reinforces the need for better accountability.”

The response says that once the SPS has been published, there is little in the way of follow up to ensure that the priorities set in the SPS are being delivered, with Ofwat essentially “marking its own homework” and little external interrogation of Ofwat’s assessment.

On streamlining regulation, the response says the price control process, led by Ofwat, has become a four-year long process that consumes “significant management and regulatory time and resource and has become inaccessible to non-regulatory experts.”

Stronger roles need for EFRA Committee, Public Accounts Committee and National Audit Office to hold Ofwat to account

Yorkshire Water says that as an independent regulator, Ofwat is ultimately accountable to Parliament. The water company is calling for the Environment, Food and Rural Affairs Select Committee to have a larger role in assessing Ofwat’s delivery of the SPS – suggesting the Committee could hold an annual evidence session scrutinising Ofwat’s delivery of the SPS and how it has balanced priorities. To further resolve what it describes as “Ofwat’s democratic deficit”, this session could be informed by evidence from relevant stakeholders (including customer groups and local authorities given the regional nature of water companies) offering an external perspective on how the regulator is delivering.

“Increasing the accountability of Ofwat to bodies that represent the public is more important than ever as the current direction of travel appears to be taking away the regional customer voice in favour of a centralised process,” the response says.

Yorkshire Water has also proposed that the SPS should include measurable targets for Ofwat, on which Ofwat should report in its annual report. In addition, there should also be stronger roles for the National Audit Office and the Public Accounts Committee in holding Ofwat to account.

On the price control process, the utility has also suggested that there should be an explicit role for the new Office for Environmental Protection in the process, the number of performance commitments should be reduced and incentives at PR24 should be simplified.

Broader proposed changes include the establishment of a single independent body to decide the cost of capital for each regulated sector. Ofwat should also consider adopting a negotiated settlement approach for large, long-term new investment projects. Commenting on partnership working, according to Yorkshire Water this remains the exception, rather than the norm - partly as a result of the “incentives inherent in the regulatory regime which can disincentivise working with others on innovative solutions.”

Liz Barber, commented:

“The SPS comes at a critical moment for both the water industry and the country. The UK is facing significant new social, environmental, and economic challenges, many of which require action to be taken now to avoid even more severe consequences in the future.

“Climate change is already causing more extreme weather events, increasing flooding incidents and droughts. Population growth will put further pressure on current infrastructure, increasing the need to invest to build a resilient water sector. We also face wider economic challenges arising from the Covid pandemic, exacerbating inequalities within our communities and putting a major burden on the next generation.

“We broadly welcome the SPS but believe some changes are needed. These are not fundamental changes to the regulation of the industry, but are straightforward changes to tackle four specific areas to help companies and regulators better deliver government priorities, improve transparency and accountability and unlock the power of public-private partnerships.”

Click here to read Yorkshire Water’s response to the SPS in full