Chief executive’s view: Building on PR14

Good regulation aligns the interests of customers, companies and investors.

Back in December, Ofwat set out how the 2014 price review was set to deliver more for less. That meant bills going down, with the sector challenged to make big service improvements.

Yet PR14 was not just about getting more for less. Just as important was the start of a change in culture. Central to the success of PR14 was moving the focus away from the regulator and onto the customer. That meant giving companies freedom to take the lead, and to begin a real shift in their relationship with their customers.

Many companies rose to that challenge with good results. However, if we are to maintain trust and confidence, then the sector needs to build on these foundations and continue to deliver more for less.  That means much more than keeping bills down. It means providing better services in a more resilient way. This means using scarce resources more smartly and working better for our natural environment.

There are some big challenges ahead. Water resources in some parts of the country – where further population growth is forecast – are stretched. Meanwhile customer expectations are rising and affordability issues are here to stay. We need to develop and maintain resilient services, provided on the basis of resilient systems – which means not only resilient networks but also the ecosystems, communities and financial systems on which our water and wastewater services depend.

Last week, Ofwat published a series of discussion papers exploring these challenges. We don’t have a monopoly on good ideas. So we want to get your views on whether we are tackling the right questions and the best way forward.

Although at this stage we are not putting proposals on the table – that will happen at the end of the year – we have made suggestions on the direction of travel. We think the principles underpinning PR14 were the right ones. We will continue to take a proportionate and targeted approach, putting the onus on water companies listening to their customers, focusing on the outcomes they want, and giving companies the freedom to deliver that.

We know that much of the easier efficiency is gone. Top slicing costs won’t get us much further. That’s why we want to encourage innovation, better use of scarce resources, and different ways of delivering the services customers want. If the sector can rise to that challenge, the value created can benefit customers, the environment, society more widely, and also investors.

The investor point is crucial. We want to encourage a customer focus, but customers will get nothing if there is nothing in it for the investor. I do not subscribe to the view that, as the regulator, our role is simply to “arbitrate” between companies’ and customers’ interests, where a pound for the customer is a pound off the investor and vice versa.

Regulation is at its most powerful where it creates a framework within which company and investor interests are aligned with customer interests. Where investors make money, where company management enjoys more freedom, when the company is doing what its customers want in a way that is resilient over the long term.

Like the sector, Ofwat will also need to change culture and innovate to succeed. Later this month, we will publish our five year business plan. This means everyone will be able to see what we intend to do and how we will work to do it. We will need to be at the top of our game to help deliver trust and confidence in the sector, but no single organisation can achieve this alone – our work is just one piece in the jigsaw and we are already working closely with others in the sector, reflecting this.

How we all adapt, innovate and change our culture will ultimately determine our long-term success. I look forward to hearing your views on how we rise to that challenge.

NB: Cathryn Ross will deliver a keynote presentation at Utility Week Congress 2015 which takes place in Birmingham on 14-15 October. Find out more about this event at: www.uw-congress.net/home