In her last ever conference speech as Ofwat chief executive, Cathryn Ross (pictured) advised companies not only to be ambitious in their PR19 business plans, but also to prepare for the world beyond that –one in which water retail as we know it could be dead and buried.
Speaking at the Future of Utilities: Water 2017 summit last Tuesday, Ross said home service aggregation and optimisation by intermediaries could be well underway before PR24 because “there exists right now both what economists call a ‘pent-up demand’ for peace of mind and convenience, and the technology that is enabling the provision of services to satisfy that demand”.
She elaborated: “Imagine a world in which you don’t even know who your supplier of water and wastewater services is, or who supplies your energy, or broadband, or maybe even your home insurance and emergency cover. Because you have a contract with an intermediary who takes care of all that for you.”
Ross said there would of course be challenges to overcome along the road – notably around data; water company’s customer engagement in a heavily brokered environment; and regulatory evolution to accommodate joined up home services provision. However she said domestic competition is not a necessity: “Those intermediaries don’t necessarily have to be able to choose water retailers to offer a bundled service.” In the round, she concluded, “the water sector, indeed all utilities, are ripe for a revolution”.
On PR19, Ross indicated Ofwat would give short shrift in its final methodology to company arguments against the proposed move to forward looking cost of equity calculations. Nor did the argument that a lower cost of capital would result in underinvestment, particularly in resilience, cut any ice.
She indicated though that there could be some movement on how exceptional business plans are rewarded: “We have had some quite thoughtful consultation responses querying whether in July we quite got the right balance between rewarding innovative business plans through upfront returns (such as that 20 basis point uplift on the cost of equity we had suggested) versus access to more powerful rewards for delivery through totex sharing factors and ODIs. And there are things in there for us to think about.”
Ofwat will publish the final methodology on 13 December.