As floodwaters rose, so did the number of column inches. Over this Christmas and New Year period, water has rarely been off the front pages. Too many people across the UK have experienced the devastation water can cause. Reading the newspaper stories and seeing the broadcast footage of families and whole communities struggling with the floods over the holiday season hammers home how destructive water can be when it runs out of control. In recent weeks, whole villages have been submerged, homes have been ruined, transport services have been halted and bridges have collapsed. Most tragically of all, several people have lost their lives.
Although water has dominated the headlines, few people will know of the range of different agencies working to manage drainage and maintain services in a crisis. Such significant weather patterns have created operational challenges for many different agencies over the Christmas period. The Environment Agency, local authorities and others have worked hard to manage flood and coastal waters. Water companies have played their role tackling surface water flooding, sewer flooding and minimising pollution events. Water is an essential public service and it is when traumatic events such as flooding occur that the public service nature of water companies’ work comes to the fore.
This year marks 25 years since water companies were privatised. Over this period, there have been significant developments in services, with companies investing in the region of £116 billion, leading to major improvements. Twenty years ago, customers were more than five times as likely to be at risk of an unplanned supply interruption as they are today and eight times more likely to be at risk of having their house flooded by sewage. Leakage today is about a third lower than it was two decades ago.
Yet despite its vital contribution to society, how the water sector works – and the intricacies of economic regulation in particular – will understandably be a mystery to most. While most water customers may have little knowledge of Ofwat, the regulator needs to be alert to and aware of the expectations and demands customers have of the water service they receive. This awareness does not just extend to the individual customer or business of today, but also to the wider societal expectations of water services and their relationship to the environment in which we live.
This focus on what customers want and need is central to our current price review. The review process has pushed companies to put customers at the heart of their business plans, by talking to their customers, listening to what they want and responding. Such engagement is important in a sector where customers cannot choose to walk away from a provider that doesn’t deliver the service they require, or just stop consuming the service. Customer trust and legitimacy comes from engagement, information and knowledge about what customers want and are willing to pay for.
The water sector has always had to grapple with the unpredictability of the weather, and the recent flooding has provided a graphic illustration of the effect this unpredictability can have on people’s lives. Other factors may be less volatile, but still create a climate of change or uncertainty: be it political, economic or environmental. As a regulator, our response to such uncertainty should not be to hunker down and stay still. Neither should it be a knee-jerk reaction that automatically results in a bigger, tighter safety net, with more direct regulatory intervention. Instead, we need to work to create a new dynamic, in which the water sector is engaged in continuous, responsive dialogue with its customers.
On 15 January, Ofwat published a consultation on its forward programme of activities for 2014/15. At the very start of that programme, we’ve set out our intention to develop a new long-term strategy for Ofwat, which will reflect the needs of everyone who benefits from water and wastewater services. As our approach to the current price control emphasises, what matters is engagement with customers about bills, water quality and resilience, and also customers feeling valued and fairly treated by responsible corporate leadership.
At the core of our thinking is the recognition that our role as the economic regulator is to make the relationship between water and wastewater companies, investors and customers work effectively.
We can do this by creating an environment where continuous, responsive dialogue takes place and by supporting conditions under which efficient companies can finance their water and wastewater businesses. This dialogue needs to include the needs and wants of future customers as well as current ones. It also needs to deliver benefits to companies, and fair returns to investors. Others also need to be part of the debate and part of our role in future may be to help to create the space where dialogue can happen between companies, customers, investors and those reflecting broader societal and environmental interests.
Of course, there are also certain standards to be set and maintained – for example in public health, environmental protection and service levels – and our strategy needs to address Ofwat’s future role in the delivery of those standards. But our price review process has moved away from the approach of “tick box” regulation and we want to continue in that direction by utilising a wider set of regulatory tools.
The launch of our consultation document on our forward programme begins a process that will extend over the next year. To succeed, we need to encourage the climate of dialogue and debate that we are looking to make a permanent part of our role. Our forward programme consultation, open until 11 February, is available on our website and there will be more detail on our strategy, and opportunities to get involved, emerging in the coming weeks. We hope you will take part.