Reducing the regulatory burden From June returns to regulatory accounts, principal statements to charges schemes, the regulatory process has transformed into a formidable machine that demands to be fed. In 1990, the annual return had 16 tables in it, and 64 pages of reporting guidance. In 2010 there were 77 tables and 854 pages of guidance. And the man hours that go into checking, querying, analysing and quality checking this – by companies and us – are considerable. This is not sustainable.
So we set up our regulatory compliance project to look at how we need to change. With the successes we have under our belt, now is the time to focus just on the riskiest areas rather than analysing everything in sight. This means we will have to find new ways of identifying those risks – where is failure most likely? We could learn this from more sophisticated customer complaint analysis; from greater use of our whistleblower charter; from listening to stakeholders – environmentalists, investors or others. Or from targeted information requests.
Companies would benefit from a reduced reporting burden, while we would be able to better protect consumers by focusing our resources on the areas where they are most required. And of course all our costs would be reduced.
We set out our initial thinking on how we might achieve this in our report “Getting it right for customers – How can we make monopoly water and sewerage companies more accountable?” And we have sent a clear signal on our commitment to reducing the amount of data companies need to provide us with. For 2010-11, we are not asking companies to provide extensive commentaries on each section of their annual June returns. One company provided us with 800 pages of commentary last year. This year they won’t have to do that and we won’t have to read and analyse those 800 pages.
But the most important thing of all if we are to move away from a one-size-fits-all to a more risked based approach is a change in culture. We are all used to having a lot of data to analyse in this sector. We all need to move away from that. Water companies will increasingly need to manage their risk. Regulators will need to let go, standing back where appropriate focusing on the areas that matter most to consumers.
Valuing water One key to doing this is understanding the value of water. Depending on time and location, water is a more or less scarce resource. Without a value of water that reflects this scarcity, those who use water have no way of understanding its true cost and so we have no incentive to manage or use it wisely.
We need to understand the value of water to us as a society; its value economically; its value to the
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environment and make decisions based on that value. A good example of our lack of understanding of water’s value is the perverse way we price abstraction rights.
At the moment it is cheaper to take water from the River Thames, where water is pretty scarce and you could be doing environmental damage, than it is to take water from the environment in Northumbria, where there is lots of water and abstraction is unlikely to damage the environment.
Revealing the value of water through measures such as reforming the abstraction regime and water trading would encourage informed, long term decisions. It would give us better information about the relative value of water in different locations and at different times. We will be in a better position to make sure we are investing in the right place at the right time for the right price to the benefit of customers and the environment.
By valuing our resources in the right way we send clear messages, not only to companies about how they should plan and use resources more efficiently, but also to consumers about the care they should take in using those services. It will also offer an incentive for water intensive industries to make more sustainable decisions both on where they locate their business and on what facilities they invest in to abstract, treat, deliver and manage water.
A pivotal moment Our world is changing, and we need to adapt. Only by working together - Government, regulators, companies and consumers – can we deliver sustainable water. And make sure that customers continue to receive the safe and reliable services they expect at a price that is clear, fair and affordable.
We need to look beyond solutions that entail simply pouring concrete. We have time to develop new way of doing things, but cannot afford the luxury of delay.
Just as we were at the dawn of privatisation 21 years ago, we are at a pivotal moment – and we need to act with the decisiveness we did back in 1989 to ensure the continuing success of the sector.
Ofwat is keen to get as much input as possible from the sector. For more details on their future regulatory programme and how to get involved, please visit
www.ofwat.gov.uk
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