Utility Week

UTILITY WEEK | 1ST - 7TH MARCH 2019 | 7 Interview Y ou'd be hard pushed to find a water company not pre-occupied with PR19 now. With 14 out of the 17 companies across England and Wales required to revise their business plans for 2020-25 and resubmit them to Ofwat by 1 April, the price review is set to continue to be a hot topic. And while undoubtedly PR19 is important to the water regulator, its chief executive "has been at pains to say" since she took over from Cathryn Ross in January last year, that Ofwat is "not just a price review organisation". "I refer to it as the biggest room in our house, but then the smallest room in my house I couldn't live without," Rachel Fletcher tells Utility Week when we meet at Ofwat's London office. Having joined from Ofgem, where she worked for 13 years – most recently as senior partner for consumers and competition – Fletcher is no stranger to the world of regulation. "I got involved in regulation a very long time ago – in 1993," she reminisces. "I started working as a consultant and they had a big contract advising Ofgas, as it was at the time, following the MMC [Monopolies and Mergers Commission] inquiry into British Gas, which led to British Gas being split up and the creation of third-party access onto British Gas's network, the creation of TransCo, the creation of the gas wholesale market and the opening up of retail competition." "It was such an exciting time," she says fondly, but admits she is "slightly embarrassed" to have been involved in draœing the network code for gas. Why the slight embarrassment? "There's still a few things that need to be changed in the network code, but it's interesting that it is still more or less in existence 25 to 30 years on," she answers. "We opened up the retail market for natural gas to business customers and the price plummeted and it was just a really good illustration of what could be achieved through restructuring – through proper regulation. I also saw how British Gas changed from one day to the next." So, what prompted the move from energy to water? "I just needed to see another sector and to get to under- stand a different sector. "I have really enjoyed the move and if anything, I think why did it take me so long to make that step? I look at energy in a slightly different light now, but I also real- ise how much of the concepts and the issues in energy are translatable into other sectors, which I hope means that I can bring value and help improve the water sector." Her "impressive track record" and experience in regulation of network and customer-focused businesses certainly stood out to Ofwat chair Jonson Cox when he appointed her. The diversity and number of companies on the monopoly side of water is perhaps the biggest difference – from the small water-only companies to the large water and sewerage companies. "It makes a real practical difference in terms of how you regulate," she says. Another key difference between the sectors is the lack of domestic competition in the water space. Aœer the opening of the non-domestic retail market on 1 April 2017, is domestic competition in water the next logical step? For Fletcher there are "more obvious targets" for competition in the value chain given the "strategic challenges" the water sector has. Speaking at the Utility Week Congress event last October, Fletcher discussed how regulators can use the tools and influence available to them to play a part in addressing "broader concerns". "That involves us stepping beyond the narrow remit originally designed for so-called economic regulators. I don't know where that term came from – I don't think it sits in any legislation that I'm aware of," she said at the time. Demonstrating her credentials go beyond "economic" regulation, Fletcher shows a keen desire for more water-efficient connections to be built for new housing developments and towns. "The connection market and NAV [new appointments and variations] market is somewhere where you can really make a big difference." As water is a "much lower cost commodity" than energy, Ofwat wants to "watch very carefully" what's happening in the energy retail market and others with "so-called loyalty premiums" to understand how to get around such a problem before "pushing hard on house- hold competition", she explains. Now Fletcher has been at the helm of Ofwat for just over a year, she's working on the regulator's strategy and what she calls a "new vision" for the sector. "The strategic role that the sector plays in our future economy and our future well-being and the value it can bring to society and the environment isn't being properly articulated and I think all of that should be encapsulated in a vision." Ofwat hopes to reveal more about what the vision will look like in the coming months, but as it develops the notion, Fletcher is keen to focus on what changes the regulator itself may need to make. "Could we be clearer about the expectations on water companies? Is there value in us having some long-term and medium-term goals, ambitions and targets for the sector to give the water companies something to focus on – to drive innovation?" she questions.

• Cover