Ofwat spies “huge scope” for productivity gains and cost cuts of 17%

Ofwat has urged the industry to use the totex and outcomes framework that will be in play for PR19 to increase productivity, make efficiency savings and demonstrate legitimacy.

At a recent workshop for water companies, the regulator shared the findings of analysis undertaken for it by KPMG and Aqua Consultants, which showed where companies use totex and outcomes to take alternative approaches, they typically save a third on costs compared to more traditional methods. Ofwat said: “Looking to the next price review, evidence suggests that water companies could cut costs by between 5% and 17% by the end of the next control period.”

At the workshop, senior director Water 2020 David Black said: “The combination of focus on customer, outcomes and totex means huge scope for productivity gains in the sector.”

He pointed out: “The issue of innovation and productivity growth is at the heart of the current debate on the legitimacy of the sector. Innovation and productivity gains are the means for shifting out the frontier of what is possible to deliver to customers.” And went on to urge: “Perhaps in a more conventional environment, companies would have favoured “holding back” on potential gains in their business plan. However, in the current environment, I think companies have a strong interest in demonstrating that they can stretch to deliver and that the business plan reflects company aspirations to deliver more, deliver better and deliver more efficiently.”