Ofwat has issued a policy statement following its recent consultation on proposals for customer engagement to play a greater role in the development of water companies' business plans for the upcoming 2015-2020 investment programme. 

However, whether the revised approach will satisfactorily address the requirements for stakeholder engagement remains to be seen.

The water industry regulator published its consultation back in April seeking views on its  proposed approach to engaging customers in the 2014 price setting process.

Ofwat received a total of 25 written responses to its consultation, including 18 from the water companies themselves, Water UK, the Consumer Council for Water, the Water Industry Commission for Scotland, the National Farmers Union, the Welsh Government, an individual customer and a market research company.

No formal written response appears to have been made by the Environment Agency, although the Ofwat paper said the Agency had “noted the need” to avoid duplication with other parallel consultation processes, such as those associated with Water Resource Management Plans and River Basin Management Plans.

The regulator also held a number of bilateral discussions, workshops and other events.

It would interesting to know the extent to which the other events engaged with industry and other businesses, local authorities and other regulators. What responses did Ofwat receive, for example, from other business organisations or water-intensive industrial users? Local Government – particularly key in the context of responsibilities for flood planning? Other environmental organisations or other NGOs, given the impact water companies have on the environment?

Having considered the responses to the consultation, Ofwat has now amended some of its original proposals and published its conclusions in a policy statement. However, the regulator has acknowledged that it is still in the process of formulating its thinking on its approach to price-setting, commenting:

“We are still developing our approach to future price limits and our methodology for the next price review so we cannot be definitive about the way we will assess companies’ business plans.”

In this context, it is therefore probably inevitable that at this stage the policy statement appears to be a somewhat woolly document which is more focussed on process rather than content.

What, for instance, does: “Broadly, we intend to follow an approach that is proportionate and that focuses on the material issues.” actually mean? Likewise, the inclusion of self-evident statements like

” Water customers are at the heart of the price-setting process – they need to know that the bills they pay are fair and legitimate. Good engagement is essential to achieving this. Responses to our consultation confirmed that the water companies, customer representatives and other stakeholders agree. “ and pointing out that customers “..will also need to understand the implications not only for their own bills, services and environment but for their children’s and grandchildren’s.” doesn’t really appear to be driving the process forward. Similarly, Ofwat’s comment “Our proposed approach is designed to legitimise the price setting process.” is obviously not intended to suggest that previous price reviews did not meet this requirement.

It will be interesting to see how Ofwat firms up on what the water companies will be expected to consult their stakeholders on and how much information will be made available to them in the process.

Will they be required to engage on every aspect of their plans – for instance, plans to increase their renewable energy output (anaerobic digestion springs to mind), carbon reduction and sustainability strategies?  Will they be able to comment on any plans the water companies might have to establish independent stand-alones to capitalise on their growing ability to exploit the resources at their disposal to become major renewable energy providers? To what extent will stakeholders have access to the commercially sensitive information which they may need to make informed decisions, without which the consultation process may be in danger of being seen simply as a PR exercise?

Water White Paper an issue?

Whether Ofwat's approach will be further modified in the light of the upcoming Water White Paper in December, which has been flagged up as heralding major changes for the UK water sector, may also account for some lack of clarity. For instance, tucked away in the document is an interesting nugget of information about the future role of the Consumer Council for Water itself, currently regarded as the primary stakeholder representative group in the sector. Although Ofwat has referred CCW throughout the document as the current statutory water consumer representative, the regulator commented:

“We are aware that the UK Government is considering possible new arrangements for consumer protection and advocacy that may change this.”

 Next steps – hands-off approach by Ofwat

Following on from the revised policy statement, Ofwat said that the companies can now begin to plan their customer engagement ahead of preparing their business plans for 2014, commenting:

“We do not intend to approve this process, nor sign off the arrangements the companies put in place.”

It is interesting to note that Ofwat currently appears to be taking a more hands-off  approach to that adopted by the present Infrastructure Planning Commission on stakeholder engagement for all of the major infrastructure projects which come before it.

Ofwat’s forward price setting timetable is now as follows:

• develop a more detailed methodology for setting prices in 2014, with a consultation in autumn 2012 and confirmation of its approach in spring 2013;
• set up an Ofwat customer advisory panel to enable customers to contribute to its developing thinking on policy decisions and technical assumptions for the 2014 price review. The group will begin its work after Ofwat publishes its consultation on the form of future price controls in autumn 2011;
• work with CCWater, the companies and other stakeholders over the coming months to identify the issues where companies and customers need support or guidance from Ofwat;
• develop a work plan for the Ofwat customer advisory panel and its own work so that the companies and their customer challenge groups understand when Ofwat will be able to provide information or advice and in what form;
• develop a ‘ready reckoner’ to illustrate the possible implications for bills of different expenditure levels;
• work with the Environment Agency and the DWI to reconcile price review processes with other planning processes and also agree what and when it can communicate about shared expectations on meeting outcomes driven by legal obligations;  
• explore with CCWater whether we might facilitate a workshop or similar event in which businesses that are customers of more than one company can share with interested companies their expectations and particular service priorities.