A recent National Audit Office (NAO) report gives a balanced summary of issues facing water companies and regulators on supply and demand for water in England and Wales.

In Ofwat – Meeting the demand for water the NAO stresses the importance of well-founded information and economic incentives as the basis for future security of supply across the country.

Water UK supports the watchdog in underlining these requirements and in encouraging collaborative approaches to delivery. Its proposals for coordinated activity by Ofwat with the Environment Agency and the Consumer Council for Water are particularly welcome.

Leakage and consumption

Ofwat is asked to improve the quality and consistency of data. Water UK is pleased that the NAO endorses the use of an economic level of leakage as a way of measuring industry performance. The industry is participating fully in Ofwat’s current review of this measure which should provide clearer guidance on how to include social and environmental costs.

Through their funding of United Kingdom Water Industry Research (UKWIR) water companies also support detailed studies of leakage and consumption. This work includes the impact of installing water meters and leakage from customers’ own supply pipes.

Water efficiency

The NAO notes that Ofwat has published a good practice register of water efficiency projects as part of its work with the government-led Water Saving Group (WSG). Water UK is also a member of WSG and companies worked closely with the regulator to bring together the relevant information.

The report recommends that Ofwat should put in place clearer criteria for projects proposed by companies in pursuit of their duty to promote water efficiency; it should assess proposals on the basis of their quality, cost and planned water saving as well as numbers of customers reached. Water UK supports provision of better information in this area but cautions against a panoply of new requirements that could stifle innovation.

Incentives

The NAO is concerned that as meter penetration increases, the incentive for companies' to promote additional water efficiency may be constrained. There is a potential problem here: lower demand would mean lower revenue other things being equal and could threaten companies’ ability to finance their functions.

The NAO is right to call for a debate on this important matter. Ultimately the issue is whether water companies are providers of an efficient water service or suppliers of a commodity product.