Ofwat has responded to the Call for Evidence issued in February by the Independent Commission on the Water Sector Regulatory System.
In its official response, Ofwat confirmed the need for significant changes to the regulatory framework in order to meet the challenges the sector is currently facing and to make it fit for purpose for the future.
It also expressed caution, advising that the focus must be on the changes that have the biggest impact for customers and the environment, while avoiding unintended consequences such as delaying urgently needed investment, reducing oversight of water company delivery and compliance or frustrating the essential process of the sector raising finance.
The regulator is also calling for the creation of a Strategic Water and Wastewater Planning Unit (SWWPU) to improve planning in England.
Explaining the need for the creation of this additional unit, Ofwat said:
“This would be a collaboration across regulators and could provide advice to a Defra chaired steering group including CEOs from regulators. The steering group could consider high level goals for the water sector and provide recommendations to the Secretary of State. The SWWPU could develop a long-term roadmap for strategic investment in accordance with these goals, with appropriate trade-offs between environment resilience and affordability and taking account of deliverability.
“This overarching framework would provide coherent long term objectives for strategic investments set by Government and regulators, to be translated into the guidance for planning frameworks such as WRMP, DWMP, and WINEP, and new long term company plans developed to address issues such as resilience, bioresources and net zero. It could also reduce the burden on the price control process as companies would use the outputs from the SWWPU and planning frameworks as key inputs to their business plans. This could mirror the planning processes in energy comparable with the National Energy Systems Operator (NESO).”
On the subject of sector oversight, the regulator said it is acting to address issues where it can, and that it has significantly changed its approach to better manage delivery and compliance issues. It has moved to a more pro-active oversight of the industry, using a risk-based framework focusing on companies and areas where concerns are greatest.
Discussing Ofwat’s ambitions for the review, the report stated:
“While the measures described above will prevent some of the issues we have seen in the past re-occurring and so help to rebuild customer trust in the sector, we are clear that more is needed to drive the changes the public demands.
“Changes to the wider framework are needed. We see opportunities in reforming the strategic planning regime, and the roles and responsibilities of different regulators and in strengthening our powers. Our proposed measures can substantively contribute to resolving issues in the current framework, but we recognise there are different ways to deliver these outcomes, and all options need careful consideration.
“The review invites views on many granular areas of potential reform put forward by different stakeholders with varying and often contested interests. Subsequent action must balance these difficult trade-offs and set out clear markers for success such that all stakeholders can understand the underpinning rationale and the path to deliver the promised outcomes of any reform.”
Ofwat’s full submission can be read here.
