Utility Week

UTILITY Week 22nd January 2016

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6 | 22nd - 28th January 2016 | utILIty WEEK People & Opinion Building trust in water at the heart of Ofwat's work The fierce criticism by the PAC did not recognise the important change to regulation has already been put in train. Chief executive's view Cathryn Ross, Ofwat L ast week saw challenging headlines for Ofwat and the water sector. "Custom- ers ripped off " was a common theme in the wake of the Public Accounts Committee's (PAC's) report into water company gains. But to get at what is actually happening, it is worth digging beneath those headlines to see what lay behind the PAC report. That tells a different story. The PAC's starting point was a National Audit Office (NAO) report into regulation of the water sector. When we saw that report we were delighted with the vast bulk of its substance. It was positive about our vision for regulation and our practical work to put a far greater focus on customer priorities, trans- parency and better data and assurance. They welcomed our focus on customers, and indeed just a few weeks later our new research on affordability in the water sector was widely welcomed. The NAO did question our decision in the 2009 price review to put the risk of financial uncer- tainty on companies not cus- tomers – especially as the way markets and tax policy moved worked out well for companies. The PAC hearing focused on that narrow issue of how pain and gain is shared – fair point, and indeed I said we were already reviewing whether we had the balance right. The key point, however, is that the PAC hearing and final report did not really focus on the important changes taking place in how the water sector will be regulated – all driven by a relentless desire to make sure customers – and society – get the outcomes they expect from the sector; not only now but in the future too. Holding companies to account and protecting custom- ers has been at the heart of what we do. Indeed the "windfall" gains referred to in the report related to decisions we made six years ago when the country was still in the thick of credit crunch turbulence. By locking in the cost of financing and tax until 2015, we made a call to shield customers from such instability. This provided certainty to cus- tomers about the cost of their bills and meant they wouldn't lose out if borrowing costs and tax went up. By 2012 it was clear things had swung significantly in com- panies' favour. We challenged companies to respond to their concerns and share additional gains. And many did, with around £435 million clawed back for customers as companies absorbed costs and reduced bills. We did not reverse past deci- sions: knee jerk reactions would only have served to push up the cost of finance – and bills – over the long term – all bad for customers. We have made many improve- ments, recognised by the NAO. Through PR14 we secured the lowest ever cost of capital seen in the utility sector. And our approach delivered £3 billion of additional savings. Bills will fall 5 per cent in real terms by 2020, while service will continue to improve Yes, it was disappointing the PAC report did not reflect the NAO's view that we had already made many positive changes. Yet we must not as a sector retreat into our shell when faced with criticism, but embrace the challenge. We are carefully considering the PAC's recommendations. We are already tackling many of the issues they raise: from reviewing how we set the cost of capital to encouraging better use of our water resources. We have also taken steps to make the sector more transpar- ent. Customer confidence relies not only on what water compa- nies deliver, but also on how they do it, underpinned by rela- tionships that are open, fair and honest. The sector will only deliver trust and confidence in the vital public services it provides if we all play our part, reflecting on criticism, crucially from the per- spective of customers and soci- ety, and, building on the sector's success to make further changes where necessary. Ofwat's consultation on its proposals to change how it will set prices in 2019 closes on 10 February.

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