Looking back over the past twelve months, we’ve witnessed what I think can fairly be described as a turning point in the history of the water sector in England and Wales. Intense and unceasing scrutiny from all sides of the political spectrum, national newspapers and the academic community has given rise to fundamental questions about who owns the sector, how it is run and in whose interest.
And it isn’t just the water companies that have had cause to reflect; we at Ofwat have been thinking in-depth about our role as the regulator and in shaping the future of the water sector in the 2020s and beyond.
It is becoming increasingly clear that how customers view and engage with their water companies is changing and this is to be welcomed. Customers are taking a greater interest in how their water company is being run, how it impacts the environment and what role it plays in the local community.
Companies must be prepared to justify all their actions not only to the shareholders who own the company, but to the customers they serve. This must extend well beyond things like bills and leakage to include corporate decisions that have so engaged Ofwat and others around the performance related element of executive pay and what they are paying out in dividends to investors.
The past year has seen calls from many quarters for change in the water sector, ranging from relatively minor interventions to renationalisation. What has become clear, is that change is not only desired, it is essential and indeed inevitable. Ofwat has been leading the charge with an ambitious agenda of reform to ensure that we have a water sector which is delivering the best outcomes for its customers.
We’ve consulted on changes to our governance principles, we’ve introduced new measures to ensure that financial benefits are shared with customers and we’ve publically – and oftentimes quite strongly – called out individual companies for failing their customers.
Our 2019 price review which is now moving ahead at full steam, is a cornerstone of our efforts to set the water industry on a new course in the 2020s and beyond. Through PR19, we are aiming to reorientate all water companies to put the customer at the heart of everything they do. As we closely scrutinise and test PR19 business plans between now and January, we’ll be looking for clear evidence that companies are responding to our challenge. Where any company is falling short, they’ll be pushed to do more.
A feature of the ongoing debate around reform and change has been calls from some quarters for more rules, and for Ofwat to prescribe in ever greater detail what water companies should and should not do.
But the truth is, you are only ever going to get so far with the regulator pushing water companies from behind. I would prefer instead to see a new internal dynamic within each water company, with the interests of the customer hardwired into everything that they do. Companies shouldn’t need to rely on Ofwat to tell them what good looks like; this should come instinctively from a deep understanding of the customers and communities they serve. This, I believe, would be the best possible outcome for customers. It goes without saying of course, that whether now or in the future, we will never hesitate to step in where we see standards starting to slip.
In the coming months, we’ll be thinking actively about where next for water regulation. In addition to reaching out to water company CEOs, investors, government and communities, we’ll be engaging with the helpful recommendations put forward by Parliament’s EFRA Select Committee last week and participating actively in the review HM Treasury has commissioned into water, energy and telecoms regulation.
Given the strong appetite for change, we feel the time is right to start a conversation about a new vision for the water sector. In recent months, we’ve been meeting with people and groups around the country and listening to their stories about what water means to them and how they feel about water. Some of the themes we are picking up from these ‘Water Stories’ – the importance of social responsibility, the environment and local communities – will form the starting point of this conversation.
Water is a vital resource and is pivotal to all our lives. That’s why we want everyone to be a part of shaping a new vision for its future.