Utility Week

UTILITY WEEK | MARCH 2022 | 23 Water Analysis Ofwat SPS is a call to action The government has published its Strategic Policy Statement for Ofwat and made clear what it expects the sector to deliver in terms of environmental protection and improving competition. T he government has set out its priori- ties for the water sector to focus on the environment and improving competi- tion in the non-household market with the publication of its Strategic Policy Statement (SPS) for Ofwat. The SPS, which will inform the 2024 price review, was laid before Parliament in early February by the Department for Environ- ment, Food and Rural Affairs (Defra) with expectations for the sector to make "progres- sive reductions" to the impacts of Combined Sewer Overflows (CSOs). As in the draˆ statement published last July, protecting and enhancing the environ- ment came out as the top priority for the sector, its regulators and government. The statement called on Ofwat to drive com- panies to be more ambitious in improving water quality and the water environment. Combined sewer overflows CSOs have made headlines in the past two years, culminating in duties being set out in the Environment Act for companies to minimise harm from CSOs and improve the transparency of reporting when a discharge occurs. The SPS said government wants to see "far less reliance" on CSOs except during exceptionally heavy rainfall. A Storm Over- flow Discharge Reduction Plan will set out the outcomes expected of the sector. Long-term investment The draˆ SPS was criticised for lacking clar- ity around long-term planning, which com- mentators said could make the industry less attractive to long-term investors. The final version said the government is committed to a long-term approach to investment, which recognised that prices cannot be lowered now if it comes at the expense of future generations. It called on Ofwat to challenge the indus- try to boost resilience through its planning, investing and operation of services. To achieve this, Ofwat should promote "efficient investment" that secures long-term resilience, while safeguarding the environ- ment and delivering value for current and future customers. Opportunities to maximise investment in the sector via co-funding with other sectors and green financing should be taken. This, the statement said, should be done by shiˆing to long-term adaptive plan- ning, which Ofwat should support by devel- oping regulatory frameworks that enable cross-sector working. Water efficiency and environmental ambition To manage demand on resources, the state- ment instructed Ofwat to hold the sector to account on its efforts to cut per capita consumption to 110l by 2050 and monitor progress against the industry-set target of halving leakage by 2050. On environmental ambition, the sector should not only meet but exceed legislation where it represents good value for money to deliver wider benefits. The SPS also backed Ofwat's previous approach for PR24 to fea- ture nature-based and catchment manage- ment solutions wherever possible and called on the regulator to find and overcome any barriers to implementing such schemes. Non-household market The statement suggested Ofwat "focus its efforts" on the business retail market, new connections and developer connections and urged the regulator to use competition in the non-household water market to stimulate long-term sustainable investment and ben- efits for billpayers. It called on the regulator to think about whether changes to market rules, processes, and structures could boost market resilience and investor confidence as well as deliver better outcomes for customers and the environment. The SPS suggested Ofwat should moni- tor and promote how water companies sup- port the development of a well-functioning business retail market. It said the regulator should encourage retailers to support cus- tomers who fall behind on bills and proac- tively manage bad debt. To buffer customers in the event of an unexpected retailer failure, the SPS instructed Ofwat to review the supplier of last resort arrangements and highlight any need to change regulatory barriers. Within the "new appointments and vari- ations" market, the SPS said Ofwat should explore customer protections including the range of customer services, complaints han- dling and available support for customers who struggle with their water bill. Government expects water companies and the regulator to work with home build- ers to support sustainable development. Statement reception Ofwat welcomed the SPS, with a spokesper- son saying: "Companies need to go further to protect the environment and we welcome the clear steer, support and endorsement in pushing them to do so. We will continue to allow significant investment in the environ- ment, take action on companies that fall short on their performance and drive them to be more transparent on their delivery and impact on rivers." On behalf of the sector, a Water UK spokesperson said the sector agrees on the need to get the basics right as well as the pri- oritisation of nature-based solutions and the urgent need to eliminate harm CSOs: "Ofwat must now work with water companies to ensure the next price review enables the sec- tor to meet government targets by authoris- ing investment in the right schemes such as net zero and improving river water quality." In January a damning report by the Environmental Audit Committee (EAC) highlighted a series of failings by water com- panies, regulators and other sectors that have led to poor river water quality across England. Many of the suggestions made in the report are incorporated into the SPS, which EAC chair Philip Dunne welcomed. He said the transparency measures will "shine a light into hitherto dark tunnels" and mark the "beginning of the end of regulators and water companies simply turning a blind eye to pollution". Ruth Williams, water correspondent

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