Utility Week

UTILITY Week 23rd October

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

Issue link: https://fhpublishing.uberflip.com/i/589314

Contents of this Issue


Page 6 of 31

There's a better water deal to be had The NAO's report into economic water regulation recognises what has been accomplished but says there is further to go. People & Opinion Utility Week community UTILITY WEEK | 23RD - 29TH OCTOBER 2015 | 7 "One of the biggest challenges facing innovation in utilities is pace: 97 per cent of innovation is killed by inertia" Denise Massey, chief executive, Energy Innovation Centre, speaking at Utility Week Congress 2015 T he National Audit Office (NAO) published its report on economic regulation of the water sector on 14 October – our first major report on economic regulation since we examined the Office of Rail Regulation's work in 2011. Despite improvements in Ofwat's latest price review, its price cap regime is not yet achieving the value for money that it should. In addition, we found that between 2010 and 2015, companies made net unexpected gains of around £800 million due to lower economy-wide borrowing costs and corporation tax rates than Ofwat had assumed in 2009; this finding was based on new analy- sis of company accounts. We recommended that Ofwat look to increase the pass-through of fac- tors outside companies' control in future price reviews. Our report found that most water service quality measures, including drinking water and environmental quality, have improved since the regulatory framework was introduced. Household bills, currently £396 a year on average, have The utility industry had the chance to catch up with leaders and regulators at the Utilty Week Congress on 14-15 October. Full review next issue. increased by 42 per cent to pay for these service improvements since privatisation, with most of the rise happening before Ofwat began setting price controls. Bills are expected to fall by 5 per cent in real terms by 2020. They currently represent more than 5 per cent of aver- age spending for the poorest households, though companies are increasingly providing sup- port to vulnerable and indebted consumers. Bill increases have been moderated by greater com- pany efficiency, but the scope for efficiency gains from compara- tive regulation has fallen. Ofwat allowed for £39 of new efficiency savings in the average annual household bill in the period 2000 to 2005, falling to £11 annually for the period 2010 to 2015. Companies have raised around £49 billion in (mostly debt) finance since privatisation. The regulatory framework includes protections against risks to customers and taxpayers arising from factors such as high debt levels, and arrangements to provide service continuity in the event of company failure, but this would involve uncer- tain costs. Ofwat has sought to improve company governance since 2013, but it could do more to understand the corporate and financial resilience of the sector to external shocks. Ofwat made major changes for its 2014 price review, setting more demanding efficiency tar- gets and giving companies more responsibility for managing their costs and risks, as well as requir- ing companies to incorporate customers' views within their plans. Ofwat and the Department for Environment, Food and Rural Affairs have accepted our recommendations to improve the regulatory framework further, which should have a substan- tial influence on future price reviews. Joe Perkins, director of regulation, consumers and competition, NAO Column Joe Perkins Extract from the Institution of Engineering and Technology's 2015 Skills Demand in Industry report, based on interviews with over 400 employers of engineering and technology staff in the UK. Current recruitment activity (by sector) 67% 61% Construction Electronics Aerospace Computing and IT Electrical Transport Defence Communications Pharma and health technologies Broadcast and media Energy All sectors 60% 58% 58% 56% 55% 48% 45% 38% 53% 35%

Articles in this issue

Archives of this issue

view archives of Utility Week - UTILITY Week 23rd October