Ofwat to ‘‘reshape’’ price reviews’ role as it unveils post-2020 vision and strategy
Ofwat today highlighted four changes it is minded to make to future price reviews as it published details of its emerging thinking about a new shared vision for the English and Welsh water sector and its strategy for regulating water companies from 2020 onwards.
The price control changes concerned:
• Scope of the review – Ofwat indicated this could be narrowed if some aspects dealt with in PR19 could be handled using other tools: “We note that PR19 included a broad scope of activities such as on companies’ approach to vulnerability, corporate, financial and operational resilience and innovation and we will consider the extent to which these might be more effectively pursued outside the price review process.”
• Process rewards and streamlining – Companies that deliver well for customers, the environment and communities could benefit from new reputational, procedural and financial benefits in subsequent reviews. Ofwat said: “We may look to evolve the current fast track approach to differentiate further between the process for companies with a strong track record in living up to the aspirations in the vision and those that are falling behind.”
• Customer engagement – “We could use insight to improve the ability of customers and stakeholders to shape the companies’ business plans, which may reduce the need for Ofwat intervention. There may be a case for national surveys or other work to improve the robustness of willingness to pay analysis especially for new commitments that could have a significant impact on customers’ bills.”
• Performance standards – Ofwat said it will consider what new performance standards might be appropriate in the light of the new joint vision, “especially best practice in protecting and enhancing the environment and delivering for society”. It will also consider: the alignment of the five year price review with medium-long term aspirations; and improving its ability to assess natural capital accounting methods.
These prospective changes reflect “three shifts” in Ofwat’s regulatory strategy for after 2020. These concern “creating a better future” (including by setting a limited number of strategic long term aspirations); “driving transformational change” (including through upping the pace of innovation, attaching stronger focus to the natural environment, and improving customer representation in decision making); and “encouraging private enterprises to deliver public value” by companies delivering “considerably more value for the environment and communities as they carry out their core functions”.
In turn, the strategy reflects a refreshed vision Ofwat has co-created with the sector and key stakeholders. The three main aspirations emerging are: delivery of everyday excellence; stewardship for the future; and delivering value for individuals and society.
Ofwat will publish the final version of the document in the autumn.