Water industry regulator Ofwat has published its forward work programme for 2011-12 to 2013-14 – with important implications for the water and sewerage sectors.

Now in the early planning stages of the next price review, one of Owat’s key aims is “regulating smarter” – reducing the regulatory burden and targeting resources where it will make the most difference. Ofwat said it is also planning to adopt an increasingly risk-based framework in the pursuit of its activities.

The regulator has set out a number of key projects which will form the basis of its work programme over the next two years, including:

• Future scenarios
• Regulatory compliance
• Accounting separation
• Licence reform
• Sustainable drainage
• Sustainable sludge

Inevitably many of the elements in the Ofwat programme will be guided by policy decisions by Government e.g. the development of retail competition for non-household customers and the introduction of social tariffs by the water companies.

The UK and Welsh Assembly Governments are also separately considering a number of changes which will affect the long-term structure and regulation of the water and sewerage sectors in England and Wales. They include:

• the development of White Papers on the natural environment and water policy, with legislation expected to follow in 2012;
• the development of a new policy on water in Wales;
• the Gray Review of Ofwat’s responsibilities which will also consider the role of CCWater;
• a wider review of consumer and competition powers by the Department for Business, Innovation and Skills (BIS)

Key dates in Ofwat’s programme for the coming year include:

April – June

Informal consultation on future price limits preliminary model (future price limits project)

Formal consultation on Ofwat’s proposed approach to customer engagement in price reviews

Sustainable Water stakeholder event – May

July – September

Formal consultation on draft risk-based framework and tools (regulatory compliance project)

Formal consultation on market arrangements for a future retail market (retail market reform project) – dependent on Government policy

Guidance on approach to customer engagement in price reviews (future price limits project)

October – December

Ofwat’s response to the Office of Fair Trading’s market study into organic waste (sustainable sludge project)

Formal consultation on future price setting framework (future price limits project)

Future scenarios publication (future scenarios project)

Sustainable Water stakeholder event – November

Final risk-based framework and tools (regulatory compliance project)

One of the issues likely to be of particular interest to the sector is Ofwat’s sustainable sludge project in conjunction with the outcome of the Office of Fair Trading’s current market study on organic waste, which was set up at the request of Ofwat. The role of anaerobic digestion and its potential to deliver significant levels of renewable energy via non-regulated activities could have important implications for the upcoming price review and whether Ofwat will seek to extend its sphere of regulatory influence as a result.

Other key areas will include Ofwat’s sustainable drainage project which will, inter alia, seek to identify and help remove barriers to the implementation of sustainable drainage systems. The regulator’s work with stakeholders to design effective incentives to encourage water trading and with the Environment Agency to support the Department for Environment, Food and Rural Affairs (Defra) and the Welsh Assembly Government in reviewing the abstraction licensing framework could also have significant impacts on the water companies’ operational activities.

Ofwat is also planning to review its approach to greenhouse gas emissions in the price setting process and recommend future policy tools to incentivise low-carbon sectors. As part of other work, the regulator will also be working with Defra, the Welsh Assembly, the water companies and CCWater to develop an effective process for transferring private sewers to the sewerage companies.

Finally, at some point this year Ofwat is also planning publish a consultation on options for regulating large projects (such as the Thames Tideway tunnel) effectively in light of the provisions contained in the recent Flood and Water Management Act.