Companies at the CMA call out what they see as inflammatory language, mischaracterisation, evasion and a drift away from evidence by Ofwat, and the CMA tries to get on with the job.

Fact

and friction

The Competition and Markets Authority’s (CMA) approach to redetermining the price controls for the four companies disputing Ofwat’s December settlement seems to have been widely well received.

Some say there could be improvements (for example, see p15), but the general sense from regulation specialists in and around the sector is that the CMA has so far discharged itself well. It has been comprehensive and sensible in its appraisal of very complex issues, and measured and balanced in its approach. The paper setting out this approach was published last month, and – rightly at this stage – gives little away on where the cases might eventually go.

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The CMA notes that among the key points of disagreement between Ofwat and the companies are whether Ofwat’s determinations impose an excessive degree of stretch; whether the outcomes of previous price controls have shown excessive returns and limited productivity gains; and whether there is insufficient emphasis in Ofwat’s determinations on matters of long-term resilience and environmental impacts relative to levels of customer charges and affordability.

​

It has also committed to look at another burning issue for everyone involved in price reviews: customer evidence and the extent to which this should be given weight in informing decisions on the redeterminations.

The general sense from regulation specialists in and around the sector is that the CMA has so far discharged itself well.”

Ferrar and away

Water UK's new chair, Anthony Ferrar, says the water industry has supported the nation as it has coped with Covid, and now wants to help bring the country back from crisis.

What seems to excite Anthony Ferrar in his new role is the opportunity to consolidate and extend the goodwill the water sector has clocked up with government and regulator over recent months.

“Where Water UK really excels is in this type of situation, where there is a very clear common goal. We saw it with Brexit 

planning and now we're seeing

seize on that." We can expect to see a shift in the trade body’s approach – again perhaps drawing on Ferrar’s experience.

“You probably know that in the past we’ve sometimes tended to dilute the messages because we’re trying to please everyone. One of the key things we want to do going forward is make sure we represent the views of the members but…we’re trying to be more proactive in some of the messaging.

"The danger is if Water UK doesn’t do these sorts of things, the vacuum gets filled by others, sometimes regulators, and it’s very much for Water UK and the sector to be setting the future strategy and vision. That’s what the team is focusing on.”

it with Covid 19, that the industry is collaborating exceptionally well.

"How do we build on that? I'm very keen that Christine [McGourty, Water UK chief executive] and I and the team take all the positives forward, including all the positive engagement we’ve had with Ofwat, other regulators and Defra. It's a huge opportunity. We must really

in the past we’ve sometimes tended to dilute the messages because we’re trying to please everyone.”

Ellins: “What we’ve managed to do is get the discussion focused on human capital.”

The time of Nick

Nick Ellins reflects on five years of championing the utility workforce, on the quarter of a million job vacancies that need to be filled over the next decade, and at emerging opportunities for the sector.

“Together, we have a once in a generation opportunity to work together and show that choosing to take on a career in our industries is about choosing to support our communities and our planet in finding sustainable energy, waste and water solutions; it is about being in the vanguard of tackling the environmental crisis; it is about meeting those vital zero carbon targets and it is about underpinning the UK economy and people with infrastructure and essential services as critical workers.”

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That was Michael Lewis, chair of the Energy & Utilities Skills Partnership, in his foreword to the refreshed Workforce Renewal and Skills Strategy, published by the Partnership in June. Outgoing chief executive of Energy & Utility Skills, Nick Ellins, agrees.

The refreshed strategy shows that water and energy companies face a number of serious, ongoing challenges on skills related issues. But also that there is evidence that a combination of vastly altered macro circumstances on one hand, and strategic achievements clocked up to date on the other, put the sector in a different place from the past and provide new opportunities.

​

Ellins also highlights a number of other developments that have emerged over the past few years that are less tangible but incredibly significant. First, “getting HR into the boardroom”.

Typically, he says, boards only got interested in HR conversations if the questions were “is the workforce constrained or can it go down?”

Long-sighted: a vision for water beyond 2020     INDUSTRY COMMENT

Frontier Economics counsels approaching PR24 as the start of a journey with a longer term destination.

The water industry has now seen two regulatory reviews with the same fundamental approach to the customer voice, service quality, cost allowances and the price control process.

While PR19 clearly built on the innovations of PR14, the methodology was largely based on refining PR14 rather than more profound change.  

Yet even before the disruption brought about by Covid 19, the world had significantly moved on since 2014. In light of the changed circumstances, the regulatory approach in our view needs to tackle three main challenges. Tweaks to the PR19 approach are not going to be sufficient to address these challenges. 

If the company is out of balance with the community and the environment, in the long term, that’s not good for shareholders. Peter Simpson

relationships

Thompson: "personalised service" to members.

A cost efficiency gap persists for slow track firms in Ofwat’s draft determinations.

THE

WATER REPORT

HARD.WATER