Ofwat: protecting consumers, promoting value and safeguarding the future

1. Ofwat: protecting consumers, promoting value and safeguarding the future The Industry’s Challenges Ahead Regina Finn3 April 2008

2. 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

3. Challenges to the sectors

4. 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

5. 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

6. 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

7. Regulatory Data: Reputational Issue • Companies are responsible for their data but we will take action where data is inadequate or performance is poor : protecting consumers, promoting value and safeguarding the future

8. Leakage Total leakage 1994-95 to 2004-05 (Ml/d) 5500 5112 4980 5000 4505 4500 3989 4000 3649 3608 3605 3551 3414 3500 3306 3243 3000 2500 2000 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 Total Leakage Year : protecting consumers, promoting value and safeguarding the future

9. 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

10. Service improvements : protecting consumers, promoting value and safeguarding the future

11. Rising to the Challenge

12. 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

13. 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

14. Price Review 2009 (PR09)

15. 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

16. 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

17. Development of Competitive Markets

18. 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

19. 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

20. 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

21. 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

22. Regulating Effectively

23. 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

24. 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

25. 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

26. 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

27. www.ofwat.gov.uk : protecting consumers, promoting value and safeguarding the future