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UTILITY Week 23rd January 2015

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14 | 23rd - 29Th JanUarY 2015 | UTILITY WEEK Policy & Regulation Analysis T he great and good of the water sec- tor gathered in central London last Wednesday for the launch of Ofwat's new strategy, Trust in Water, but this was a regulatory unveiling like no other. The assembled water bosses, City analysts and customer representatives are used to reams of paper stuffed with eye-watering detail, but this time they were treated instead to a colourful animated video, accompanied by rousing speeches from some of the water regulator's most outspoken critics. Had they come to the wrong place? No, indeed. Inclusivity, transparency, simpli city – they are all key to Ofwat's new strategy, and the regulator was taking a very public opportunity to practice what it preached. Hot on the heels of the PR14 price review, the new strategy is founded on "trust and confidence" (it's even got its own Twit- ter hashtag), and builds on outcomes and principles-based regulation. While Ofwat le the detail to be pub- lished on its website the next day, chief exec- utive Cathryn Ross did set out its high-level priorities, in the form of four key principles (see box on facing page). These comprise: delivering the reforms set out in the Water Act – including setting up non-domestic retail competition; maintaining investor confidence; developing how performance is monitored; and ensuring Ofwat has the skills to back up the new strategy. This new strategy will not be some "dusty document" that gets read once and then le on a shelf, according to Sharon Darcy, asso- ciate at Sustainability First. "This will be a living strategy. But it is only a living strategy if everyone plays their part," she said. The openness of the approach leaves room for an "ambiguity" that could be "uncomfortable", she concedes, but she said it is worth it for the prize of greater freedoms under a principles-based approach, and to move away from "micro-management". She put the onus very much on the industry itself to pursue the collaborative agenda Ofwat is outlining – "the sector will only be as good as we all make it" – but she reminded everyone that to build up trust within the sector, "you have to accept there will be tensions and will trade offs". Trust and confidence in water are the overarching aims. The regulator says for this to be achieved, the water-only compa- nies and the water and sewerage companies must: listen to their customers and deliver the outcomes they, the environment and wider society want; have strong relation- ships with the supply chain and investors; and speak with and listen to government and regulators. There is the key word again – "speak". Conversations, debates, speaking and listen- ing make up the backbone of this strategy. Ofwat made a very clear signal of its intent in its speaker line-up. Waterwise managing director and resilience campaigner Jacob Tompkins, known for his challenging views, has been brought "in-house" by the regulator and given the chair of the resilience working group. This group will flesh out the details of what the resilience duty laid on Ofwat by last year's Water Act will mean in practice. It will also answer many questions about the future direction of the sector. Tompkins was as forthright as ever, liken- ing Ofwat to "a prison", where the regulator told the companies what they could do. How- ever, with the new strategy, he said: "The doors have been thrown open and [the com- panies] have been le to wander the world themselves. There is a complete change." This change involves the industry debat- ing what it needs to do, according to Tomp- kins, before politicians, customers and other industries start debating – and enforcing – changes on the sector without its consent. Ofwat and the water companies need this to draw the sting of criticism and address the issues as a whole – to build that trust and confidence Ofwat desires. How this is achieved – "stop selling water" was one controversial idea put forward by Tompkins, advocating a shi towards a service-orientated business – is what the debates of the next year aim to set out. He added that the next price review can- not be the same as the last one. This one was Ofwat's listening With its new Trust in Water strategy, Ofwat has eschewed the prescriptive approach to regulation and challenged all stakeholders to get on board and have their say. Mathew Beech reports. Quote me "There is a shared understanding in what we're trying to achieve here… genuine openness, thoughtfulness, challenge and active engagement in the market for ideas." Cathryn Ross, chief executive, Ofwat "I've always considered Ofwat to be a bit like a prison. [The companies] are all prisoners in this nice regulatory framework and told exactly what to do. What's happened now is the doors have been thrown open and [the companies] have been le to wander the world themselves. There is a complete change." Jacob Tompkins, managing director, Waterwise and chair of the resilience working group "What can we – the industry – do to protect independent regulation? I think the first thing we have to do is realise its value. Don't take it for granted because there isn't a certainty it will survive." Peter Atherton, utilities analyst, Liberum Capital "It's moving away from Ofwat dictating terms,potentially getting involved in micro- management, to everyone in the sector having a role." Sharon Darcy, associate, Sustainability First "We're looking for a dialogue on a very different basis to the way dialogues have been in the past. It requires all parties to come to the table constructively with propositions and things that move it forward." Jonson Cox, chairman, Ofwat

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