Utility Week

Utility of the future: Regulation 10 | 18TH - 24TH OCTOBER 2019 | UTILITY WEEK Rachel Fletcher on Ofwat Reorganising regulators is like rearranging the deckchairs on the Titanic As discussed on the previous page, an ongoing debate in the sector is about whether it would make more sense to slice and dice the regulators di erently. Rather than one devoted to water and one to energy and one to telecoms, there is a school of thought that it would make more sense to combine the di erent disciplines and then split by infrastructure and consumer focuses. What did our regulators think of such an idea? While Nolan was agnostic and thought it unlikely to happen because of the administration needed, Fletcher thought it the wrong debate to be having. "You can move deckchairs around – spending time and money doing it – but the real question is what outcomes are we aiming for?" she said. Nolan agreed that regulators needed to be collaborating and providing coher- ence across the consumer agenda. Fletcher said it was the Environment Agency that Ofwat needed to be joined at the hip with. We've heard the talk, it's time for action Rachel Fletcher's participation in the debate came at a juncture of peak tension as water com- panies do battle over nal PR19 determinations and on the day it published its vision for improve- ment and social value. The vision has three key goals, as Fletcher explained: "Firstly, to transform the perfor- mance of the industry. It's fair to say that water companies are not consistently meeting customers' expectations. In some areas per- formance is stagnating. In some companies, performance is going backwards and particularly the challenges of variance in weather and increase in popula- tion is beginning to take its toll. "The second plank is ensur- ing much greater collaboration across the industry as a whole in ensuring reliable, a€ ord- able supplies for future gen- erations while improving the environment. "Finally, recognising water companies have an opportunity to do much more for society and the environment. The goal should be to become public value providers not just a pro- vider of a transactional service." Fletcher said water com- panies' recent public interest commitments were a good step forward. These make water the rst industry to pledge to achieve net zero emissions by 2030, as well as making far-reaching commitments around plastics, leakage, water poverty and social inclusion. However, she made it clear that talk was one thing, action another: "We have got a massive amount of ambition, and companies recog- nising they are about more than just giving a good service at a decent price and making a good return for their shareholders. What we need to do over the next few years is get from good words into some really impressive action." Fletcher stressed that getting consumers to value water was vital – but unless companies got their own house in order it would be diŠ cult to bring the public onside. "One of the things that stops customers using water wisely and listening to the advice is that they don't believe their provider is doing a particularly good job of using water. They see a leak at the end of their road and they think: what does it matter if I water my rose bush, then? There is an absolute necessity for companies to step up their performance." She added: "I would really like to see a national campaign on water use. I don't think in my whole life that I have thought about my water consumption for more than half an hour. It just has not registered on my con- sciousness. We take water that has been taken from the environ- ment, cleaned to food standard safety – a very energy-intensive process – and we use it to clean our mountain bikes. These things have to stop but we need to do more of these things by educa- tion because most of us just haven't had the time to consider the impact we have on the envi- ronment through our water use." Resilience means e ciency Ofwat's chief batted o€ criticisms that in rejecting capex gures in some of the water companies' business plans Ofwat's stance on investment to boost resilience was unworkable and contradictory. "Ofwat signalled two years ago that we would set stretch- ing performance targets, that we expected companies to increase their eŠ ciencies and that they needed to look at their balance sheets and make sure that it was shored up for a tougher determi- nation," she said. "I think it is important the industry realises the clarity of the signals we gave. There is a serious conversation that needs to be had about whether there is a glide path on some of the per- formance targets that we're set- ting to 2024; and there are always conversations about costs and whether our models are right. "But I would take issue with the argument we are pushing back on resilience – and you would expect us to run a slide- rule and determine whether the schemes being put forward are being made eŠ ciently." Innovation critical Like Ofgem, Ofwat has recog- nised the need for innovation funding on top of the day-to-day business costs and has set out proposals for a new £200 mil- lion fund which has gone down well in the sector. "We recognise there is a gap so wide between what is happening and what is needed – the principle that we should take a lead is there," she explained. "What troubles me most about innovation in the water sector is not the extent of trials and pilots going on, but the slow pace at which new approaches get adopted. "That said, it's not imme- diately obvious to me that the approach that is used in the energy sector will necessary solve that challenge and I'm open to ideas and views on how you deal with that last step in water." See Congress coverage, p14 "We have got a massive amount of ambition, and companies recognising they are about more than just giving a good service at a decent price and making a good return for their shareholders."

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