Water industry regulator Ofwat is today launching a wide-ranging consultation across England and Wales on what the water sector should look like by 2040.

As it embarks on the design of future price reviews, Ofwat is asking some open questions about the long term goals to meet the needs of customers, the environment and wider society.

Ofwat has launched the Future Ideas Lab in order to explore how the regulator, the water sector and wider stakeholders and decision makers can meet these challenges. The Lab is intended to be a place where stakeholders can collaborate on the development of ideas for how the regulator should design future price reviews to meet the challenges and take up the opportunities that have been set out.

The regulator has published two separate discussion papers which are each seeking comment on a number of issues. 

The discussion paper PR24 and beyond: Future challenges and opportunities for the water sector includes the following 12 questions:

1. What could the water sector look like in 2040, and how can Ofwat and water companies work towards that vision?

2. How do we best regulate to help companies to achieve longterm goals such as adapting to climate change, reducing leakage, improving water efficiency and delivery of net zero?

3. How do we encourage companies to ensure services are affordable for all, both now and in the longer term ?

4. How can we encourage companies to innovate and to take advantage of technological change to increase productivity, reduce costs and improve resilience, service and the environment?

5. How do we encourage companies to improve service to customers and operational resilience?

6. How can we encourage companies to best take account of customer needs and priorities, while ensuring services are comparable across companies?

7. What, if any, could the role of the price review be in encouraging orincentivising companies to better deliver public value?

8. How do we better use markets to deliver better value to customers and the environment?

9. How can we best account for specific issues, circumstances and Government policies/priorities in England and Wales?

10. How can we best align the interests of investors with delivering for customers, the environment and society?

11. How do we encourage companies to collaborate and work in partnership with others, such as on nature-based solutions, to better achieve outcomes for customers and the environment?

12. How can we simplify the price review while increasing value to customers, the environment and wider society?

Launching the consultation, Ofwat said the water sector faces a number of challenges as it looks towards 2040. The fourth industrial revolution is afoot as smart technology changes the way companies will operate. Citizens and communities increasingly expect companies, including those in the water sector, to consider the wider impacts of their operations and to deliver public value.

The water sector can play a powerful role in protecting and enhancing the environment and achieving net zero while ensuring system and services are resilient to the impact of climate change and extreme weather. And meeting the challenges of the future is likely to bring mounting cost pressures at a time when affordability is an increasing concern.

Ofwat commented:

“All companies adapted well to the immediate challenges of Covid-19. But, there will always be lessons to learn and going forward, the industry will need to become better at anticipating and adapting to uncertainty and change. They will also need to innovate at a greater pace than before and make full use of opportunities from smart networks, nature based solutions and markets to thrive in the future. “

Launching the Future Ideas Lab, David Black, Chief Regulation Officer at Ofwat said:

“The water sector faces profound challenges in the years and decades to come, but as the regulator - we share this challenge. We want to look towards 2040 and beyond and drive companies to seize opportunities to best meet the needs of customers, communities, and the environment. As in any industry, water companies will need to adapt and evolve if they are to transform their performance, and face the future with confidence.”

A separate discussion paper - PR24 and beyond: Reflecting customer preferences in future price reviews –  is seeking contributions to shape the next price review to explore how customer preferences can better inform the price review process. Water is an essential service and customers increasingly expect their water companies to consistently deliver high levels of service, while responding to their individual needs. This will involve placing the interests of customers at the heart of decisions made - Ofwat said today’s paper seeks to explore how that can be better achieved in future price reviews.

Commenting on the launch of the customer engagement discussion paper, David Black continued:

“The customer voice must be heard more clearly, both by the regulator and by water companies that provide such an essential service. We are committed to exploring how best we can do that and look forward to working with the sector, including consumer groups to ensure that is the case.”

Water UK -  "good to see Ofwat’s commitment to learning lessons from PR19"

Christine McGourty, Chief Executive of Water UK, the body which represents all the UK water companies, commented:

“We welcome Ofwat starting a conversation about the long-term challenges facing the water sector, and how PR24 can help deal with those. This work will make an important contribution to the sector’s strategic response to a growing set of challenges.

“Foremost among those is the urgent need to tackle climate change. While we are the first sector internationally to commit to net zero operational emissions by 2030, it is clear there will be much more focus needed in coming years on preventing and adapting to drought and floods. Our response will need the combined leadership and creativity of companies, all of the regulators, and Government. We look forward to contributing to Ofwat’s work and will say more in due course about the opportunities and challenges facing our customers, their communities and the environment.

“In the meantime, it is also good to see Ofwat’s commitment to learning lessons from PR19. It is vital that we approach this with an open mind and ensure the views of everyone inside and outside the sector are heard. Any process as complex and important as this will be open to improvement, and we look forward to discussing ideas for making processes simpler and more sharply focussed on the things that matter most.”

Click here to download PR24 and beyond: Future challenges and opportunities for the water sector

Click here to download PR24 and beyond: Reflecting customer preferences in future price reviews – a discussion paper