REGULATION


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Why it’s time for a change of strategy


Ofwat chief executive Regina Finn


ngland and Wales have come a long way since the water and sewerage sectors were privatised 21 years ago. In 1989, polluted beaches and rivers and a neglected infrastructure meant the UK was seen as the ‘dirty man of Europe’.


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In 1990, less than 80% of England and Wales’s bathing waters met the required standards. The sector needed significant investment, yet taxpayers had little appetite for spending more. Water companies were seen as inefficient, and there was little incentive for them to improve standards of service. Privatisation of the sector has tackled these challenges head on. Now there are salmon in the Mersey, more than 100 Blue Flag beaches, leakage is down a third since its mid-90s peak and drinking water is recognised as up there with the best in Europe. To get there, the water and sewerage companies have invested about £90 billion between 1989 and 2010 – double the rate of investment before privatisation. Yet we have kept bill increases down by driving out inefficiencies from both sectors, with bills being 30% lower than they would have been without our regulation. A litre of tap water delivered and taken away costs less than a penny.


And where customers have been let down, we have taken action. In the last five years water companies have had to pay out more than £500M from their own pockets where they have failed their customers.


New challenges ahead


Our approach to regulation, with its combination of incentives and tough targets, has worked well. With these successes behind us it might be tempting to simply crank the handle again when we come to setting price limits in 2014. But that approach will no longer keep delivering. The


As the privatised water utilities turn 21, the English and Welsh industry is at a pivotal point of change. Regina Finn, Ofwat’s chief executive officer, shares the regulator’s perspective on the way ahead for water and sewerage


solutions of the past won’t meet the challenges of the future because those challenges are different.


We face a changing and more unpredictable climate and that is impacting on our water resource. For the last four years we have had either a drought or a flood every year, and last year we had both in the one year. And we are facing significant population growth, particularly in south-east England where water is already scarce. We must be able to meet the water needs of those people. At the same time we need to meet rising environmental standards, including the implementation of the EU Water Framework Directive. All of this, against a background of economic uncertainty and the consequent affordability issues this raises. So we must start to do things differently.


Future regulation


This is why, at the end of 2009, we announced our future regulation programme. It is a root and branch review of how we regulate, considering whether there are better, more sustainable, ways of doing things. We are lucky; we have the success of the past to build on and we have a unique window of opportunity in which to develop our approach to future challenges. We need to make sure we are in the best position to deliver sustainable water – socially, economically and environmentally – both now and in the long term.


The year 2010 was spent building consensus about the challenge we face, developing our thinking and gathering and incorporating feedback from our stakeholders. This has been invaluable, as we are still at the stage where we are looking to ask questions and explore options rather than deliver answers. Looking forward, 2011 is a crucial year. David Gray’s independent review of Ofwat will be published in the spring and his conclusions will feed


Farmoor reservoir in Oxfordshire: population growth will increase pressure on resources in the south-east.


IV Consultant and Contractor File January 2011


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