July/ August 2020 issue

List of contents

This website includes excerpts from the latest edition of THE WATER REPORT

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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.


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.

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.”

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

Thompson: "personalised service" to members.

will keep you on top of the threats and opportunities in retail and upstream competition.


It's the eye on the competition.

We asked THE WATER REPORT Expert Forum for views on where the market should go from here. The responses were mixed.

Shopping around

The non household retail market in England has been rocked by Covid impacts. Knock-on effects for liquidity and bad debt have required interventions to keep the market afloat. The risk of retailer insolvency has been heightened. And the Covid shock came on top of pre-existing issues which have meant the market was already struggling to live up to expectations. 


Perhaps the only truly unifying viewpoint from the Forum was that  something should be done rather carrying on in fundamentally the same shape as for the past three years. 

Three quarters of respondents said it would be valuable to do some kind of high level review of the market, to take stock of how well it is working and what may need to change. And it was broadly felt  that the review would be over and above ongoing work to improve the market – for instance through MOSL’s market performance activities, code changes and trading party actions.

For some, the Covid impact had been the trigger event. One Forum member said: “The Covid crisis has brought the market frailties into

sharp focus. Long-standing issues need to be addressed.” Another said:: “It's necessary in light of Covid 19 and it's expected ongoing impact on businesses. Many. sadly, are not expected to survive post pandemic and with the adaptations needed to get back to business it is likely that consumption will remain flat for a while.”

It is currently a zombie market and a reputational risk to the water sector.”

To thine own self be true

Metering, water efficiency incentives and unwinding Covid measures dominated the discussion at June’s gathering of the self-supply community.

A briefing prepared by Waterscan for the water self-supply community it supports – the Self Supply Users Forum –  reported self-supply retailers had paid 100% of wholesaler invoices through the Covid period. Most other retailers have taken up the option to defer payments.


And the company assured its self-supply clients that, in a market where the vacancy flag had been incorrectly applied in many cases – it reported nearly 20,000 premises did not have the required Covid flag in CMOS – its use of the flag had been “wholly appropriate,” with supporting evidence meeting the enhanced guidance criteria.

Forum members’ attention regarding the pandemic protections centred on how the Covid vacant flag might be unwound.  Waterscan managing director, Neil Pendle, said “flexibility

rather than a blanket approach” would be welcomedby the community when the flag was unwound.

Ofwat’s associate director for market outcomes and enforcement Dan Mason said the regulator would consult this month on the issue (see July's THE WATER REPORT  – subscribe HERE). 

He said the approach could be “nuanced” rather than abrupt.

Pendle went on to highlight a separate point that lockdown had revealed. He said he was “surprised how much low level consumption” was going through empty properties; the meters he had personally read showed an average 10% leakage rate.


This, he said, was “remarkable” given most self-supply retailers had had leak detection programmes in place for a number of years. There could be quite an opportunity to reduce consumption by tackling this hitherto hidden leakage.

Three’s a crowd

MOSL’s new MPOP has only three focus areas – Covid remediation, data and metering – but is still action packed. 

MOSL has published a streamlined Market Performance Operating Plan (MPOP) for 2020-21, detailing its market improvement programme for the year. There are just three strands of activity. Remediation activity for Covid 19 joined the two perennial market priorities: high-quality customer and asset data, and timely and robust consumption data.


While the Covid actions were unpredicted but necessary, the other two focus areas directly support MOSL’s business plan commitment to make the market "easier to do business" in by reducing the time, effort and overall cost of operating in the market.

Covid remediation 

Following the outbreak of Covid 19, MOSL created a high-level impact assessment and made a number of adjustments to the focus areas of MPOP 2020/21. Key drivers were:

  • premises inadvertently marked as vacant, and inappropriate adjustments to Yearly Volume Estimates (YVEs) – these followed the hurried implementation of CPW091 which introduced the Covid vacant flag and allowed retailers to adjust YVE of meters to alleviate cash-flow;

  • lack of available consumption data, due to curtailed meter reading activity; and 

  • reduced liquidity / increased bad debt with the attendant risk of delayed or non payment of primary charges, unplanned retailer exit, and reduction in quality/availability of core services. 

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