Ofwat publishes six final public value principles

Ofwat has published its final public value principles, refining the draft principles it consulted on last July but without any material changes. It noted respondents broadly agreed that a principles-based approach could help to facilitate the delivery of social and environmental value by the sector; and that Ofwat should not attempt to define specific outcomes or set metrics for assessment, at this stage.

The final principles

1. Companies should seek to create further social and environmental value in the course of delivering their core services, beyond the minimum required to meet statutory obligations. Social and environmental value may be created both in direct service provision and through the supply chain. (The approach recognises that water customers cannot be expected to fund activities that are not related to a water company’s statutory functions).

2. Social and environmental benefits should be measurable, lasting and important to customers and communities. Mechanisms used to guide activity and drive decision- making should support this, for example through setting and using company purpose, wide external engagement and explicit consideration of non-financial benefits. (Ofwat does not intend to set out an overall framework for social and environmental outcomes to be delivered but indicated it would set outcomes and expectations for some of the most common and important social and environmental outcomes through its regulatory toolkit, including PR24).

3. Companies should be open with information and insights on operational performance and impacts (both good and bad). This will support stakeholder engagement, facilitate collaboration and help identify opportunities for delivering additional social and environmental value. (There are clear links here with Ofwat’s open data agenda, but on public value it has ruled out mandating a particular approach at this time).

4. Delivery of social and environmental value outcomes should not come at greater cost to customers without customer support. (It argued where companies seek to pursue outcomes with a price tag, the evidence case must be “robust”). In such cases the evidence base to support proposals will need to be robust.

5. Companies should consider where and how they can collaborate with others to optimise solutions and maximise benefits, seeking to align stakeholder interests where possible, and leveraging a fair share of third-party contributions where needed. Companies’ public value activities should not displace other organisations who are better placed to act.

6. Companies should take account of their capability, performance and circumstances in considering the scope for delivering greater social and environmental value.

Ofwat said it would review how the public value principles can be embedded into its regulatory tools, and specifically that it would set out its expectations around the delivery of best value through the price control in its PR24 draft methodology in July 2022.