On 25 February Ofwat hosted its Turning the Tide conference in Westminster bringing together water companies, eNGOs, campaigners and others from the sector to discuss the AMP8 period and year ahead.

Delivering the keynote address, Ofwat Chief Executive David Black told the conference that turning the tide had three key elements:

• It will require the sector to delivery on a very ambitious investment programme. This itself will be challenging ask for companies, competitive providers and the supply chain.
• With bills increasing sharply, customers and stakeholders will expect to see improved service and better performance. While the investment will enable better outcomes over the long term, maximising the impact of investment will require innovation such as harnessing the best impact from new technology, including the rollout of 10 million smart meters and the rollout of smart water and wastewater networks and monitoring of storm overflows.
• The need to rebuild trust of customers and stakeholders that companies are serving customers and the wider public interest.

He told delegates:

“I think this is about more than performance or customer bills, but about whether pain and gain is fairly shared between customer, company executives and investors. And the sector is seen to be doing the right thing, compliance with the law should be inherent in all activities.”

He went on to say that if the sector is to change, then Ofwat needed to change too and be more proactive in the way it regulates and collaborate more effectively with partner regulators.

The Ofwat CEO cited a number of examples in the wide-ranging speech, including:

• Ofwat’s work with RAPID and major projects where Ofwat works closely with EA and DWI to enable much needed major projects to come forward.
• Ofwat’s new £100 million Water Efficiency campaign – the regulator hopes to go out to tender later this year to choose a body to deliver the campaign.
• Next week’s opening of Ofwat’s first office in Wales
• The need for much closer oversight and scrutiny of companies’ delivery of their PR24 investment programmes.
• The introduction of a new enforceable customer-focused licensed condition in 2024 – the impact will be reviewed in 2025
• New requirements for companies to develop and publish high quality vulnerability strategies setting out their plans to provide extra support for those who require it. The plans will be submitted to Ofwat later this year.

New environmental performance commitments include target of zero serious pollution incidents

Commenting on concerns about the environment, David Black said PR24 will provide a major step up in investment to significantly reduce sewage discharges and reduce impact of treated water discharges. Among other things, Ofwat is introducing a range of new environmental performance commitments including a target of zero serious pollution incidents.

He pointed out that Ofwat wants to encourage the further development of nature-based solutions to address the impacts of wastewater activities. Referring to £3 billion in green solutions in the AMP8 investment period, Ofwat had “provided significant flexibility in PR24 final determinations to enable companies to adjust approaches from conventional solutions to hybrid and green solutions.” and expect companies to work with stakeholders to maximise the beneficial impacts.

In addition to the water efficiency fund, in order to encourage water efficiency Ofwat will also update the wholesale charging rules to help support company trials of alternative charges structures for both household and business customers.

Water sector makes important contribution to supporting economic growth which is set only to increase

David Black drew particular attention to the important contribution the water sector makes to supporting economic growth, saying this is set only to increase, commenting:

“I think that the sector has huge opportunities to contribute to sustainable growth.

“We have a pipeline of £50 billion for 30 major water resources over the next 20 years, almost all of them outside the price review, so an addition to the new investment announced in PR24. These projects will be important to enabling economic growth as well as improving resilience of water supplies to impact of climate change and reduce over-abstraction of water from iconic chalk streams. These projects face many of the same challenges as major infrastructure elsewhere in the economy and we will work closely with government to help enable the development of these projects.”

He also flagged up a rapid expansion in the market for competitive developer services in England, in particular the use of new appointments to support the Government’s ambitions to step up house building. “Reflecting the growth of competition in developer services markets, we have partly deregulated some activities of this market by shifting services out of the price review,” Black said.

Financial resilience of companies remains a key focus for Ofwat

The Ofwat chief told delegates that the financial resilience of companies remains a key focus and the regulator would monitor companies, engaging closely with those that need to take steps to address weaknesses in their financial resilience or which have significant new equity that they are raising.

He also highlighted a range of modifications Ofwat has made to companies’ licences to strengthen protections for customers, including around dividends. In deciding to pay and declare a dividend, company boards must now take account of service delivered for customers and the environment, and the financial resilience of the company.

“We have already taken enforcement action against a company that in our view has failed to comply with the new licence condition and will take further action if other companies do not comply with their new obligations,” he said.

“We know that the price review will need to change"

He concluded by telling his audience:

“We know that the price review will need to change…

“We now have window of opportunity to consider how price controls can be designed to best achieve the outcomes that the sector needs to deliver in future decades….

“The sector is facing a set of deep seated challenges – change is needed. Some of the ingredients for transformation are in place such as the four-fold increase investment in PR24. However, there remains much to do to deliver on the promise of new investment and this is a challenge for all of us.”

"Regulation needs to be modernised, streamlined and clarified"

Commenting separately in a statement on the launch of the Cunliffe review, David Black said:

“We are clear that the water sector needs to change. The Cunliffe review is a once-in-a-generation opportunity to help rebuild public trust. We all want to see companies delivering improved service for customers and better environmental outcomes.

“Since privatisation the sector has delivered £240 billion of new investment: reducing leaks by 40% to their lowest ever level, increasing reliability and ensuring that customers continue to enjoy some of the best quality drinking water in the world. And through our latest price review we’ve allowed record levels of investment, backed by stretching targets to turn around company performance. But there is much more to do, especially to tackle pollution from storm overflows, improve river health and customer service.

“Almost 35 years after Ofwat’s remit was first set out in legislation, regulation needs to be modernised, streamlined and clarified to deliver more effective oversight and enable us to drive change in the water sector.

“We urge everyone interested in the water sector to participate in this review and seize the opportunity to build a water sector fit for the 21st century.”