Ofwat looks at upcoming challenges and PR19 lessons as it scopes out future regulation

Ofwat has kicked off a programme of work around the future of the water sector and the design of future price reviews.

The first of three papers published last week set 12 key questions for stakeholders to frame the discussion. These included:

• how do we best regulate to help companies to achieve long-term goals such as adapting to climate change, reducing leakage, improving water efficiency and delivery of net zero?

• what, if any, could the role of the price review be in encouraging or incentivising companies to better deliver public value?

• how do we encourage companies to ensure services are affordable for all, both now and in the longer term? and

• how can we best align the interests of investors with delivering for customers, the environment and society?

To accompany this, Ofwat launched a Future Ideas Lab, explaining: “This is a place for stakeholders to collaborate on the development of ideas for how the regulator should design future price reviews to meet the challenges and take up the opportunities that have been set out.”

In a second paper, the regulator explored how customer preferences can better inform the price review process. Chief regulation officer David Black said: “The customer voice must be heard more clearly, both by the regulator and by water companies that provide such an essential service. We are committed to exploring how best we can do that and look forward to working with the sector, including consumer groups to ensure that is the case.”

Finally, there was a paper on lessons learned from PR19. Among the areas for improvement cited were addressing “large variances in customer valuations for the same service across companies” and resilience: “We consider that water companies do not yet have a full understanding of their own resilience, particularly in the longer term. There is more for us and the sector to do to build that understanding to ensure customers and the environment are sufficiently protected.”

Ofwat noted further lessons would come from the conclusion of the CMA process. It plans in Spring to consult on the development of future price reviews, looking ahead to PR24, PR29 and the long term.