Ofwat has set out its five year business plan for 2016-17 to 2020-21 which the regulator said may change significantly from year to year, as circumstances change and its priorities evolve.

Introducing the business plan, Ofwat said the programme of work for 2017-18 to 2020-21 was based on its current best estimates and assumptions and should be used as an indication only.  

For the upcoming year, Ofwat said it has used intelligence and analysis to identify a clear set of priorities for its work during 2016-17 and identified a number of discrete but interlinked packages of work projects organised into themed programme areas in order to deliver them.

Working to ensure that markets deliver real benefits for customers, the environment and society is one of the key programmes during 2016-17 where the regulator says it can make the biggest impact for customers both now and in upcoming years.

This will include:

• working with Welsh Government, water companies in Wales and National Resources Wales to ensure that regulation supports the effective development of payments for eco-systems services;
• working with the Department for Environment, Food and Rural Affairs (Defra) and Market Operator Services Limited (MOSL), to put in place the arrangements for the opening of the retail market for eligible business, charity and public sector customers of companies whose areas are wholly or mainly in England in April 2017 in a way that secures benefits for customers;
• completing its review, following a request from the UK Government, of the costs and benefits of extending choice to residential customers in England;
• continuing to support the UK and Welsh Governments’ work on abstraction reform;
• continuing its work with the sector to improve developer services;
• and continuing its work as part of the Water 2020 programme on whether and how markets in England and Wales for water resources and for sludge treatment and disposal can help the sector become more efficient and more sustainable.

Ofwat will also continue its work on improving information and accountability during the year, includingfurther development of the toolkit to monitor the sector’s performance and its resilience, and working with Water UK on  the development of the strategic sector dashboard which is due to go live on 31 July 2016.

Work will include maintaining investor confidence

Commenting on the upcoming period of change which iscoming in the sector and the way that it is regulated, Ofwat said its work during the year will include ensuring that service providers and others across the sector – including itself as the regulator – maintain the confidence of customers. The regulator will also work to maintain the confidence of investors in the sector and the economic regulatory framework - this includes continuing to discharge its statutory financeability duty, to ensure that efficient companies can access capital markets.

The plan says that during 2016-17 Ofwat will also work to ensure it has the necessary skills, experience, systems, processes and culture in place that support the new strategy. A particular focus this year will be on developing the delivery model for the 2019 price review and making sure the regulator has the capabilities it requires for this.

2017-21 plans include implementing  water resources and sludge markets

Looking beyond 2016-17, the business plan sets out the following milestones:

2017-18

• New market for water and wastewater retail services opens for eligible business customers in England.
• Consultation on methodology for the 2019 price review – and publication of the final methodology.
• Reviewing the effectiveness of company social tariffs and update the affordability and debt report.
• Assess the performance of the sector and the impact of our regulatory framework in supporting the UK Government’s ambitions for house building.

2018-19

• Monopoly companies send Ofwat their business plans for the next price control period.
• Publish the results of the risk-based review of monopoly companies’ business plans.
• Publish first review of the non-household retail market in England, assessing the effectiveness of competition and how it is delivering for customers and whether customer protection is sufficient.

2019-20

• Publish the draft decisions of monopoly companies’ price controls for the next price control period.
• Publish the final determinations of monopoly companies’ price controls for the next price control period.

2020-21

• Publish lessons learned from the 2019 price review – and reconciliation rulebook.
• Finalise the framework for monitoring and reporting on company performance for the next price control period.
• Implement water resources and sludge markets, having worked with the sector to establish these in previous years.
• Review the effectiveness of water and wastewater markets and their interactions with other markets.

Work Ofwat will carry out regularly during the course of each year includes:

• publish annual results of water sector performance, financial resilience, service resilience and board, leadership and transparency principles.
• review a service area (unspecified) delivered by monopoly companies.
• Consult on and publish revised board leadership, governance and transparency principles for regulated and holding companies.
• publish Ofwat’s five-year business plan, forward programme and annual report and accounts.
• publish decisions on disputes and investigations as appropriate.

Benefits include lower bills, better service and more innovation

Commenting on the business plan, Ofwat said that it will deliver a range of benefits by delivering the  programmes, including costs kept down for customers, contributing to overall affordability and productivity, coupled with lower bills, better service and more innovation. “Customers and society will enjoy more of what they want for less, as Ofwat is an effective and efficient regulator”, the plan says.

Resourcing the plan to include option of PR19 delivery partner

In terms of delivering the plan, Ofwat said it will be working closely with other regulators as part of the UK Regulators Network (UKRN). The regulator said it would explore the practical steps needed to share, provide, outsource or jointly deliver services with other regulators.

Ofwat is already collaborating with UKRN members on developing for new models of service delivery corporate enabling functions  and developing wider collaborative models with URKN for core regulatory work.

This is the first year when the regulator will be operating under maximum revenue and capital budget caps set by the UK Government as part of the 2015 Comprehensive Spending Review (CSR) settlement through annual expenditure limits. Ofwat’s capital budget for 2016-17 is £25.4 million, falling to £23.6 million next year and rising to  £28.9 million and  £29.6 million for 2018-19 and 2019-20  respectively. For 2020-21 the plan includes an indicative figure only of £24.2 million.

Commenting on savings made to date, Ofwat said that by 2019-20 it will have halved its accommodation footprint and costs, and achieved a ratio of 8.3m² per FTE, saving £3.5 million by 2019-20. It has also nvested in ICT infrastructure which will deliver £0.2 million annual savings on website, telephony and infrastructure costs by moving systems to the Cloud.

By 2019-20 Ofwat has also committed to £1.13 million saving (13% real terms) reduction in all of its‘overhead’ running costs.

The plan says the regulator is also improving its workforce planning so that it has the right in-house skills and can reduce its use of external specialists, interims and contractors.

However, Ofwat said it is “open to bringing in external people as needed to deal with peaks in ..workload or highly specialist skill needs.” This will include building on the success of working with a delivery partner on the 2014 price review - when Ofwat appointed PWC as its PR14 delivery partner. .

Ofwat’s  annual report for 2013/14 highlighted significant failures in its own internal processes and financial management during the period in its financial planning for PR14. During the year Ofwat had to address a significant and – unforeseen- financial overspend of £5.6 million.

The regulator said it will explore a range of potential collaborative delivery approaches to support its core resources to meet the significant peaks in workload expected in 2018-19 and 2019-20 to deliver the 2019 price review.

The business plan concludes with an explanation of how Ofwat’s performance during the period will be monitored. The regulator is planning to report on its own performance, saying:

“We will publish a summary and description of our performance quarterly, describing the priorities and outcomes as we reflect them in our activities.”

Click here to download Ofwat's Five-year business plan 2016-17 to 2020-21