New Ofwat strategy ‘throws the door open’

The great and good of the water sector gathered in central London last Wednesday for the launch of Ofwat’s new strategy – but this was a regulatory unveiling like no other.

The assembled water bosses, City analysts and customer representatives are used to reams of paper stuffed with eye-watering detail, but this time they were treated instead to a colourful animated video, accompanied by rabble-rousing speeches from some of the water regulator’s most outspoken critics.

Had they come to the wrong place? No, indeed.

Inclusivity, transparency, simplicity – they are all key to Ofwat’s new strategy, and the regulator was taking a very public opportunity to practice what it preaches. Hot on the heels of PR14, the new strategy is built around “trust and confidence” (it’s even got its own Twitter hashtag), and builds on outcomes and principles-based regulation.

While Ofwat left the detail to be published on its website the next day, chief executive Cathryn Ross did set out its high level priorities, in the form of four key principles (see box 3). These comprise: delivering the reforms set out in the Water Act – including setting up non-domestic retail competition; maintaining investor confidence; developing how performance is monitored; and ensuring Ofwat has the skills to back up the new strategy.

Trust and confidence in water is the overarching aim. The regulator says for this to be achieved, the WOCs and WASCs must: listen to their customers and deliver the outcomes they, the environment and wider society want; have strong relationships with the supply chain and investors; and speak with and listen to government and regulators.

And there is the key word again – “speak”. Conversations, debates, speaking and listening make up the backbone of this strategy. Ofwat made a very clear signal of its intent in its speaker line up. Waterwise managing director and resilience campaigner Jacob Tompkins, known for his challenging views, has been brought ‘in-house’ by the regulator and given the chair of the resilience working group. This group will flesh out the details of what the resilience duty laid on Ofwat by last year’s Water Act will mean in practice. It will also answer many questions about the future direction of the sector.

Tompkins was as forthright as ever, likening Ofwat to “a prison”, whereby the regulator told the companies what they could do. However, with the new strategy, he said: “The doors have been thrown open and [the companies] have been left to wander the world [them]selves. There is a complete change.”

This change involves the industry debating what it needs to do, according to Tompkins, before politicians, customers and other industries, start debating – and enforcing – changes on the sector without its consent. Ofwat and the water companies need this to draw the sting of criticism and address the issues as a whole – to builds that trust and confidence Ofwat desires.

How this is achieved – “stop selling water” was one controversial idea put forward by Tompkins, advocating a shift towards a service orientated business – is what the debates of the next year aim to set out.

He added that the next price review cannot be the same as the last one. This one was quite different but the one after has to be “more different”. It is the same as what has gone before, politicians and outside parties will lead the discussion on what the water sector should be doing.

Liberum capital utilities analyst Peter Atherton – another individual known for his challenging views– was also given a platform to speak his mind.

He, like Tompkins, said that the industry must change voluntarily before it is forced to do so – especially by politicians eager to be seen to be making a difference in a general election year.

“Be proactive and work with Ofwat. Work with the other regulators to make that point. And be good corporate citizens. At the end of the day if your customers are happy, the media don’t particularly hate the sector then politicians are less likely to come after you,” Atherton said.

Coupled to this, by earmarking and debating change of its own free will, the industry gives greater certainty to investors – key priority number two – because they have greater sight of what may change, rather than facing up to a politically led change.

Not one speaker mentioned the debacle that engulfed the water industry in 2012 when the regulator attempt to modify Section 13 of the companies’ licenses – but it was surely on everyone’s mind. As Ross, whose predecessor Regina Finn left shortly after the row, called for a mature and sensible debate, the alternative – bodged reform, political intervention, or another unholy row – seemed all too obvious.

This time, in every way, Ofwat is determined to do it differently.