Ofwat is the economic regulator of the water sector in England and Wales. It aims to protect consumers, promote effective competition, and secure efficient and resilient water supply. While privatization has brought investment and improvements, challenges remain around affordability, sustainability, and long-term resilience given a growing population. Ofwat recognizes it cannot address these challenges alone and coordination is needed. It aims to build on past approaches through outcomes-focused regulation, customer engagement, and encouraging innovation, but recognizes changes are needed to drive greater efficiencies and meet long-term needs.

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Exploring the Water Challenge: An Ofwat perspective
Stephen Beddoes, Senior Analyst
January 2016

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Our duties:
protect the interests of consumers,
wherever appropriate by promoting
effective competition
secure finance for efficient companies
so that they can properly carry out
their functions
further the resilience objective to
secure the long-term resilience of,
water companies water supply and
wastewater systems and to
secure they take steps to enable them,
in the long term, to meet the need for
water supplies and wastewater
services
Ofwat’s role within the UK
Government
Defra
Ofgem
Other
groups
NGOs
Europe
Regulators
Environ-
ment
Agency
UNECE
EWP
EU
CCWater
Academics
DWI
Natural
England Cabinet
Office
WAG
Natural
Resources
Wales
Ofwat
Trust in water

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UK Water sector structure today
The water industry in England and Wales
In 1989:
Privatisation of 10 Water Authorities, making a total of
39 regional vertically integrated monopolies
Today:
We regulate 33 licensed companies:
10 regional monopoly water and sewerage companies
8 local water only monopoly companies
5 new appointees
10 water supply licensees
Successes:
Private sector investment – >£125 billion in real terms
Better and more stable infrastructure
Improved standards of service
Greater environmental and drinking water compliance
Consumer bills 30% lower thanks to economic regulation

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What kind of regulator do we aim to be?
 Relationships-focused
– sector stepping up,
taking responsibility
for relationships,
being open, honest,
fair and transparent.
Outcomes-
focused – focus
on the things
that really matter
to customers,
the environment
and society now
and in the future.
 Using all the tools in our
regulatory tool kit – to shine a
light on issues and provoke
debate.
 Proportionate and
targeted – focusing our
intervention where it is
most needed. The sector
providing assurance. We
step in where necessary
to protect customers.

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…but challenges mean the status quo is not an option
Achieving affordability and sustainability in the context of these challenges is key.

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Ofwat doesn’t hold all the answers – coordination is a key challenge

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Photo © Highways Agency
Taking a long-term view is essential

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Innovating for the long term

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Photo © South West Water
Working together
Ofwat is the economic regulator of the water sector
We do not regulate the environment
We cannot tackle the challenges alone

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Photo © Highways Agency
Markets have an important role to play in driving resilience

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Photo © Environment Agency
Stretched water resources and rising population

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Photo © Getty Images
Resilience is not possible unless customers play an active part

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Water 2020 in summary
We plan to build on our 2014 price review approach,
which kept bills down and drove service up through...
Smarter water use
Potential benefits of £1
billion from encouraging
water trading – better
sharing of resources across
company boundaries
benefits customers and the
environment
Releasing power from
waste
Treated sewage produces
sludge which can create
energy and other things.
A sludge market could
unleash more sustainable
energy generation and
lower bills
…but stability in this sector is vital so certain changes will
require a managed transition. That is why we are continuing
to protect investment made (the RCV) as at the end of 2020
Customer engagement
Conversations with a quarter
of a million people
Outcomes for customers
522 tailored performance
commitments
Targeted intervention
Stepped in to reduce time lost to
supply interruptions by a third
Encouraging innovation
Totex led to new approaches and
helped deliver £3 billion savings
That won’t be enough if we are
to meet new challenges...
Stretched water resources
and rising population
Forecast 20% population rise over
20 years, much of it in drier areas
Protecting environmental
water quality
Four out of five water bodies do
not meet appropriate
environmental standards
Developing and maintaining
resilience
Services and systems – such as
financial and ecosystems – need
to be able to anticipate trends and
withstand and recover from shocks
now and in the future
Tackling affordability
Bills will drop 5% in real terms by
2020, yet one in five customers do
not feel their bill is affordable
...and if we carry on regulating
the same way, we will not drive
the efficiencies we need
-£39
2000 to 2005
Value of
efficiency
savings (bill)
(2012-13
prices)
-£18
2005 to 2010
-£11
2010 to 2015
When we set prices in 2019, we propose to keep
what works well, while making changes to help the
sector meet the long-term needs of customers,
society, the environment and investors…
A better, more legitimate
measure of inflation
Bills and company returns are
linked to RPI inflation. A phased
move to CPI will help maintain
trust and confidence and reduce
bill volatility
Better customer conversations
and a long-term approach
Encouraging companies to move to
a deeper understanding of what
customers want, including over the
short and long term
Photo © Getty Images

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Photo © Mick Knapton
Reflections
What are the services that matter to customers and
society?
How can the needs of future customers be accounted for?
How can we focus service providers on the long term?
How can markets be best used to inform, enable and
incentivise more sustainable, efficient approaches?
How can regulation inform, enable and incentivise this?