The lobby group said Ofwat’s move towards “totex” when setting prices was welcome but the new regime was biased against water efficiency.
In its methodology published last month, the regulator said it would use a cost-to-serve calculation to set retail controls. Water efficiency will be factored into this, but it is a cost allocated to the retail side of the business while many of the benefits are on the wholesale side.
“In the same document is introducing totex, it is also introducing this cost-to-serve idea, which is basically the same problem under a different name,” said Jacob Tompkins, managing director of Waterwise.
One solution would be for the wholesale business to pay the retail arm for investing in water-saving measures. However, Ofwat has not made clear how this would work, said Tompkins.
Industry body Water UK agreed that separation of retail and wholesale price controls could make it harder to deliver water efficiency. Head of policy Rob Wesley said there needed to be a “strong link” between retail and wholesale business units.
An Ofwat spokeswoman said there “appears to be confusion among stakeholders” about how to recover the costs of water efficiency investments from the wholesale business. The regulator will hold workshops to clarify the situation.