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Environment, Food & Rural Affairs Committee report – Regulation of the water industry

  • United Kingdom
  • Environment
  • Food and drink

10-10-2018

The EFRA Select Committee’s report into regulation of the water sector was published on 9 October 2018. Its key conclusions & recommendations are outlined below.

Water transfers

Water transfers should play an important role in increasing supply and resilience.

The Government and Ofwat should make a strategic assessment of the need for water transfer infrastructure and confirm a long-term target for water transfers. Existing incentives in PR19 are not strong enough to incentivise water companies to invest in water transfers.

Leakage

Ofwat should set a long-term target for water companies to reduce leakage. Continuing the trajectory set by the target of 15% by 2025, the water industry should collectively be aiming to reduce leakage by 50% by 2040, rather than 2050.

Demand reduction

Defra should amend regulations by the end of 2019 to allow all water companies to implement compulsory metering, using smart meters. Water companies should use these powers to help achieve ambitious PCC reduction targets. Support for economically vulnerable customers should be strengthened should metering lead to significant bill increases.

Customer complaints

Ofwat should review how the complaints process within water companies could be streamlined. This could include a mechanism whereby water companies either automatically pay complainants a fixed sum or escalate complaints to CCWater if the complaint is not resolved by the company within 15 days.

Financial structures

The financing arrangements of some water companies fall below the standards to be expected from providers of an essential public service. Ofwat should have firmly tackled the imbalances in the financial models of some water companies much earlier.

Ofwat must strike a difficult balance between consumer interests and making it financially worthwhile for water companies to satisfy their investors. That balance has been skewed in favour of the latter. The regulator’s proposals to “balance the sector” are now heading in the right direction but they may not go far enough. Ofwat should review the changes implemented by water companies on financial engineering, dividend policies and linking executive bonuses to delivering for customers and publish a written update by April 2019.

Government should give Ofwat powers to bind water companies to the governance principles through licence conditions.

Pollution incidents

Government should review whether the Environment Agency has the necessary powers and resources to enforce a drastic reduction in sewage overflows into our rivers.

Water retail

The first year has delivered unimpressive results for water efficiency.

It is disappointing that small and medium enterprises (SMEs) have not engaged well in the market as customers. Ofwat should consider ways to incentivise water retailers to attract more SME customers.

Ofwat should undertake annual reviews until the market is shown to be delivering real competition and water efficiency.

Water sector regulation

Government should commission an independent review of whether the water industry and regulation are fit to meet future needs such as drought resilience, as well as delivering value for money for customers. Consideration should also be given to whether the price review cycle is too short to allow long-term planning in the industry. This recommended review should begin immediately so that it can influence the 2024 price review.

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