Fletcher raises ‘serious concerns’ to PAC

Ofwat has defended its approach to investment, resilience and bills after being accused of not doing enough to manage water supply and demand in a report by the Public Accounts Committee published in July.

Rachel Fletcher, chief executive of Ofwat, wrote to Meg Hillier MP, chair of the PAC, to address concerns that Ofwat had not prioritised long-term resilience. She said PR19 placed a “clear emphasis on increasing long-term resilience” through funding packages and stretching performance targets.

The PAC spoke to representatives from the Department for Food, Environment and Rural Affairs (Defra), Ofwat and the Environment Agency at the end of May to discuss water supply and demand.

It accused the regulators of having “collectively taken their eye off the ball” with managing and futureproofing water supplies.

Fletcher said that through the price review the regulator had challenged companies to adopt a long-term approach to resilience and to give Ofwat substantive assurance that their plans addressed looming problems. It also demanded they set performance commitments up to 2035.

A spokesperson for Ofwat said the regulator was disappointed at some of the inaccurate representations made to the committee and welcomed the opportunity to set the record straight.

They said: “Ofwat is pushing water companies hard to deliver in the best interests of customers – by focusing on improving performance, keeping bills down, and investing for the future. Our most recent price review delivered a significant £50 billion funding package for water companies from customers, including £13 billion of investment for the future, to secure better results for customers and the environment.”

On the cost of regulation, Fletcher’s letter to Hillier said Ofwat’s activities added £1.20 to customers’ bills as opposed to the £15-16 a year suggested by evidence submitted to the committee on the total cost of regulatory activity.

Fletcher clarified the regulatory approach on leakage ambition by explaining Ofwat did not “force” Yorkshire Water to scale back its ambition but incentivised it to exceed the target of 15 per cent reduction. She said the overperformance payment can then be used to fund further reductions to the level of ambition Yorkshire believes in achievable.

The parliamentary report called for tighter control from regulators to avoid water shortages in the coming decades.

It explored how to balance the need for investment with keeping prices affordable and called infrastructure developments “far too ponderous”.