Ofwat: Firms ‘didn’t shift much on costs’ in PR19

An Ofwat director has complained that some water companies have been reluctant to shift their stance on costs during the PR19 process.

For those firms rated slow-track or under significant scrutiny, there is now just over a month to take on board Ofwat’s draft determinations and respond. The regulator will publish its final determinations on 11 December.

David Black, senior director of Water 2020 at Ofwat, told Utility Week that while there had been general acceptance on performance delivery, costs had become a sticking point.

He said: “A lot of companies didn’t shift much on cost. There was a reluctance to challenge themselves on cost efficiencies whereas there was pretty broad agreement on performance delivery, particularly around leakage and supply interruptions.”

He said three companies in particular had remained “in pretty much the same place at draft determination as IAP (initial assessment of plans)” – Anglian, SES and Yorkshire. While Thames was also warned that its assessment of base costs differed wildly from Ofwat’s, it had improved is position, Black said.

Affinity, Hafren Dyfrdwy and Southern were among the companies which had seen the best improvement on cost efficiencies, he said, while Norumbrian and South East had also bettered their position.

He defended Ofwat’s message to businesses that they must do more with less, saying: “The targets have been calibrated by looking at historical performance so we are confident they are achievable by well-managed companies.”

In terms of specific reduction targets, Black said that the 64 per cent drop in supply interruptions had been inspired by the performance of leading companies, adding: “Some are really proactive and looking far ahead so giving us 2030 and 2035 targets as well. Those give us confidence that reductions can be made. The best performing over the past four years have achieved a 50 per cent reduction.”

On the target of a 40 per cent reduction in sewer flooding, he said: “This was an area where Ofwat and the businesses were very much aligned. We took inspiration from Severn Trent, who have made very significant reductions on external surface flooding. A lot of that has been done not through new investment but through how they operate their business.”

Ofwat’s plan sets out a commitment to help almost 1.5 million customers who currently struggle to pay their bills. Industry leading practice in this area, highlighted by Ofwat, includes Southern and Hafren Dyfrdwy, who are putting new measures in place to help them understand what kinds of affordability support work best for customers, and to tailor their support according to people’s needs.

Five companies (South West Water, Wessex Water, Thames Water, Northumbrian Water and South East Water) will double the number of customers they provide with financial support through social tariffs and WaterSure. Four companies have pledged to partly self-fund their social tariff schemes using shareholder money: South West Water, United Utilities, Welsh Water and Yorkshire Water.

There is also a target of adding two million more vulnerable customers on to the priority services register. Here nine companies (Affinity Water, Bristol Water, Northumbrian Water, SES Water, South East Water, Southern Water, Thames Water, Yorkshire Water and South West Water) are committing to maintaining high customer satisfaction among their most vulnerable customers. Meanwhile, eight companies (Affinity Water, Anglian Water, Northumbrian Water, South West Water, United Utilities, Thames Water, Wessex Water and South East Water) are committing to adopt the British Standards Institute (BSI) standard for accessible services.

On the commitment reduce water use down to an average of 131 litres per person per day, Black said: “We have a lot further to go in terms of reducing water use. When you look at England & Wales compared to other European countries there seems to be much higher levels of water consumption. There are two companies who have pushed quite hard and achieved much lower levels of per capita per consumption. There doesn’t seem to be anything particularly special about how they have done that.

“But, we recognise that it does require a more joined up effort, so the government has a role to play there in terms of building regulations and new homes.  We have also set out for consultation a project to take it forward.”