Looking to the future

The UK faces a number of challenges in securing an efficient, reliable water resource. The impact of climate change means that water scarcity will become an ever increasing reality, impacting some regions of the country more than others.

This means we will have to be innovative in how we respond to these issues.

In December 2011, the Government published a Water White Paper “Water for Life” which takes resilience as a key theme. It examines how the industry can become better equipped to respond to climate change, whilst at the same time ensuring customers come first and water remains affordable for all. In May 2012, a Draft Water Bill was announced in the Queen’s Speech

We have worked closely with the Department for Environment, Food and Rural Affairs (Defra) to ensure that changes to the water industry deliver the Government’s priorities and prepare the industry for the challenges of the coming decades. We have helped drive debate through the publication of In whose hands?: exploring vertical integration in the water industry, which looks at what structures best deliver secure, sustainable and affordable water services. Its core recommendation that vertically integrated water companies are the best means of delivering water and wastewater services was adopted in the White Paper.

Resilience

Measuring resilience is one of the key challenges facing the water industry. Being able to consistently measure resilience across companies would be useful in helping customers understand their relative risk exposure, regulators and stakeholders in understanding and challenging company performance and to the companies themselves in learning from best practice and driving up standards. This report recommends that resilience is measured through a basket of measures and we have developed a potential metric to contribute to the current debate. View the report

Wastewater Cost assessment

For PR19 we have commissioned Arup, supported by Vivid Economics, to carry out an independent study into the exogenous factors associated with WaSCs’ operating environments which influence the wholesale costs of wastewater services. The study investigated whether factors such as demographics, ecology, climate, geography and asset legacy issues have a quantifiable impact on the cost of delivering wholesale wastewater services in England and Wales. The work has brought together engineering and econometric evidence to identify and value the drivers of variation in costs between companies. The project assembled narratives on the causal factors that affect efficient costs, data on how these factors vary between regions, and statistical evidence on the relationships between different factors and efficient costs. This integrated approach to wastewater cost assessment adds a new and unifying perspective to existing commentary on the topic.View the report.

Retail Cost assessment

Together with Northumbrian Water, we have commissioned Economic Insight to consider options for the assessment of household retail costs at PR19.

As part of the last price control process (PR14) Ofwat and United Utilities produced a report considering a range of issues associated with controlling prices for those customers who cannot choose their water supplier. The report reviewed some of the implications of this change in approach to cost assessment and considered a range of options for implementing the retail price control for these non-contestable customers. View the report.

We have commissioned Equifax and Reckon to consider the role that deprivation and alternative indicators of arrears risk may have in the PR19 household retail cost assessment. View the report.

Upstream pricing concept paper

As part of the programme of consultation supporting Ofwat’s Water 2020 initiative, we have prepared a paper setting out our views on the best approaches to upstream pricing. View the report.

In response to Ofwat’s December 2015 consultation on its approach to regulating wholesale services from 2020 and beyond, we have produced a number of papers to contribute towards the debate. These cover the indexation of price controls, future approaches to the RCV, the development of access pricing, approaches to customer engagement and considerations for the development of a price control for sludge.

Our response to the Ofwat consultation

In July 2016 Ofwat published its assessment of the costs and benefits of introducing competition for retail services to residential customers in England. You can read our response here.

Outcomes and Performance Measures

In November 2016 Ofwat will be consulting on its approach to setting service performance commitments at the next price review. This will include the balance between measures and targets being set nationally and companies setting their own measures and targets through local engagement. We have published a paper setting out our proposed approach as our contribution to the discussion.