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The Industry’s Challenges Ahead
Regina Finn
3 April 2008
Ofwat: protecting consumers, promoting value and safeguarding the future
Overview
•
Challenges for the water and sewerage sector
–
–
•
Global and national challenges
Issues specific to the England and Wales Industry
Rising to the challenge
–
–
What can the industry do to tackle these challenges?
What is Ofwat doing?
•
•
•
•
Periodic Review 09
Development of Competitive Markets
Regulating effectively in consumers’ interests
Conclusion and questions
: protecting consumers, promoting value and safeguarding the future
Challenges to the sectors
Global challenges
• Global drivers are affecting water and waste
water around the world
– Climate Change
• Mitigation
• Adaptation
– Population growth, or movement
– Increasing demand for water
– Changing weather patterns
– Environmental improvements
: protecting consumers, promoting value and safeguarding the future
National Challenges
• Mitigating climate change by reducing
greenhouse gasses
• Adapting to climate change in water
management
• Planning for volatile weather – droughts,
floods
• Meeting ever higher environmental standards
• Financing significant investment programmes
• Facing social pressures and affordability
: protecting consumers, promoting value and safeguarding the future
Industry Challenges in England and Wales
• Droughts, then floods:
– How has the industry handled these?
• Water bills:
– Affordability and above inflation increases?
• Reputation
– Misreporting of regulatory data
– Leakage
• Customer Perception?
: protecting consumers, promoting value and safeguarding the future
Regulatory Data: Reputational Issue
• Companies are responsible for their data but we will take
action where data is inadequate or performance is poor
Company
Fine
Reason
Date
United Utilities
£8.5 m
Breaching rules
governing trading
arrangements with
associate
companies
June 07
Southern
£20.3 m
Deliberately
misreporting
information and
delivering poor
service to customers
Feb 08
: protecting consumers, promoting value and safeguarding the future
Leakage
Total leakage 1994-95 to 2004-05 (Ml/d)
5500
5112
4980
5000
4505
4500
3989
4000
3551
3649
3608
2002-03
2003-04
2004-05
3414
3500
Total Leakage
3605
3306
3243
3000
2500
2000
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
Year
: protecting consumers, promoting value and safeguarding the future
But its not all bad news…
• £70bn invested in water
sector since 1989
• Essential services
safeguarded
• Improved reliability and
quality of service
• Improved water quality safe, reliable drinking
water
• Reduced leakage
• Reduced risk of sewer
flooding
: protecting consumers, promoting value and safeguarding the future
Service improvements
25
DG2
20
DG3
DG5
DG5 1:10
DG5 1:20
DG6
15
% Failing
DG7
DG8
10
5
0
1990/95
1995-2000
2000-01
2001-02
time
2002-03
2003-04
2004-05
: protecting consumers, promoting value and safeguarding the future
Rising to the Challenge
What can the Industry do?
The sector has to address key sustainable
development challenges and continue to deliver
high quality, good value services to consumers
by:
• taking account of the needs and concerns of all consumers
by delivering high quality good value services
• innovating and finding new creative ways to deliver
• taking ownership of long term plans
• taking account of social, economic and environmental
impacts
: protecting consumers, promoting value and safeguarding the future
What is Ofwat doing?
• Protecting consumers;
• Promoting value; and
• Safeguarding the future
by
– delivering a professional, high quality, effective
Price Review for the monopoly sector in 2009;
– shaping and enabling the development of a
competitive water and waste water sector;
– creating “new” regulation that will deliver now
and in the future for consumers
: protecting consumers, promoting value and safeguarding the future
Price Review 2009 (PR09)
PR09
•
A price review with a clear focus
on best value for consumers and
the environment over the long term
– Strategic Direction Statements
•
A longer term view adding value to
the price review process by taking
account of:
– The development of competition
– New environmental and quality
requirements
– Climate change and carbon
reduction
– Affordability and customer bills
: protecting consumers, promoting value and safeguarding the future
PR09
Our price limits will
support and encourage a
sustainable water sector by:
•
•
•
Providing incentives for companies
to deliver efficiency, innovation and
give consumers value for money
Implementing a framework that will
deliver long-term planning that
balances local and global priorities,
and
Enabling the development of a
competitive market
: protecting consumers, promoting value and safeguarding the future
Development of Competitive Markets
Markets
• Ofwat has a duty to
promote competition
• We will introduce
competition
progressively in the
interests of consumers
• Competition has
delivered benefits
elsewhere and can
deliver benefits for water
consumers…
: protecting consumers, promoting value and safeguarding the future
The Benefits of Competitive Markets
Tackling future economic, social and
environmental challenges by:
• stimulating a dynamic retail sector
• driving innovation and dynamism in technology and
processes, thus
– reducing the potential impact of the sectors on the
environment
• improving efficiency and reduce costs of supply
• offering consumers greater transparency in what
they pay for.
• Offering consumers choice and empowering
customers.
: protecting consumers, promoting value and safeguarding the future
What is Ofwat doing?
• Inform Government
Review of competition
and innovation in the
sector
• Examining potential for
competition throughout
the value chain
• Spring Publication seeks
to:
– secure innovative entry,
efficient investment and
customer benefits;
– Protect water quality and
security
– Contribute to social and
environmental objectives
: protecting consumers, promoting value and safeguarding the future
Competition Key Principles
• Water has similarities with other network utilities
• Regulatory unbundling of the value chain is an
early step
• Structural unbundling of retail can be done quickly
• Mechanisms to be developed to secure innovation
in resources
• All customers should benefit from competition
• Separate cross-subsidies from the functioning of the
market
• Simple and transparent market models and access
pricing
: protecting consumers, promoting value and safeguarding the future
Regulating Effectively
Regulating Effectively
• Where competitive
markets are not yet
there to protect
consumers, we must
regulate effectively;
• We aim to regulate to
protect consumers,
promote value and
safeguard the future
: protecting consumers, promoting value and safeguarding the future
Regulating Effectively
• Reducing the regulatory burden by
developing approaches that rely on less
regulatory data from companies.
• But we will take action where data is
inadequate or performance is poor.
• Continue to regulate prices and service until
competition is strong enough to protect
consumers.
: protecting consumers, promoting value and safeguarding the future
Regulating Effectively
• Delivery of PR09 based on the well
understood methodology used so far
– Transparency,
– Stability
– Certainty
• Review the form of regulation for the future
– How will competition impact markets?
– Tools to regulate monopoly –v- contestable
markets?
– Taking account of the long term…
: protecting consumers, promoting value and safeguarding the future
Conclusion
• The sector has delivered
significant benefits for
water consumers
• To continue to deliver,
together we need to build
on the success of the past
and develop new tools to
tackle the challenges of
the future
: protecting consumers, promoting value and safeguarding the future
www.ofwat.gov.uk
: protecting consumers, promoting value and safeguarding the future