EFRA calls for supply and demand action, and regulation review before PR24

The Environment, Food and Rural Affairs Committee last week published a series of bold recommendations from its inquiry into the regulation of the water industry – including that leakage should be halved by 2040, compulsory metering enabled, and regulators given more powers.

Its key recommendations were:

• Abstraction reform – the government should include an assessment of the need for statutory reform when it updates Parliament in 2019. The Committee questioned whether the voluntary approach would work and said Brexit should not block legislation.

• Water transfer – the government and Ofwat should make a strategic assessment of the need for water transfer infrastructure and confirm a long-term target for water transfers.

• Leakage – “Ofwat’s target for water companies to reduce leakage by 15% by 2025 is not ambitious enough and Ofwat should set a long-term target for water companies to reduce leakage. This would help focus efforts beyond the five-year period of PR19. We consider that continuing the trajectory set by the target of 15% by 2025, the water industry should collectively be aiming to reduce leakage by 50% by 2040, rather than 2050.”

• Metering – “We endorse the recommendation of the National Infrastructure Commission that Defra should amend regulations by the end of 2019 to allow all water companies to implement compulsory metering, using smart meters.”

• Per capita consumption – The committee said a cross-Government target for PCC reduction over the next 25 years should be published.

• Customer complaints – the process is convoluted and should be reviewed.

• Regulation – The EFRA Committee recommended a review of water regulation begin immediately so that it can influence the 2024 price review.

• Finance – MPs were sceptical Ofwat’s Back in balance proposals go far enough, and said: “Ofwat should have firmly tackled the imbalances in the financial models of some water companies much earlier, and we were not satisfied with its explanations as to why it had not done so.” They told the regulator to publish a written update by April 2019 on the changes implemented by water companies on financial engineering, dividend policies and linking executive bonuses to delivering for customers.

• New powers – the government should give Ofwat powers to bind water companies to governance principles through licence conditions, and review whether the Environment Agency has the necessary powers and resources to enforce a drastic reduction in sewage overflows into our rivers.

• Retail - The Committee recommended annual reviews “until the market is shown to be delivering real competition and water efficiency” and a push on SME engagement.