Water industry regulator Ofwat says the water and sewerage sectors need to make a step change in innovation if they are to meet the challenges of ever rising customer expectations, population growth and climate change.

Ofwat says the impact of recent weather – flooding in a time of drought – is just one short term example of the major long term issues that the industry has to start to tackle.

Ofwat’s ‘Statement of Principles’, published today, provides a framework for how the regulator will set new limits on the prices water and sewerage companies can charge between 2015 – 2020. It describes how regulation will evolve so the sector can continue to deliver sustainable services for customers in decades to come.

The statement says that legitimacy in the eyes of customers is crucial and that the companies need to better understand their customers and become more responsive to their feedback. Ofwat says the new approach will:

• give customers a stronger voice on how water companies deliver their services and the prices customers pay for those services;
• send clear signals to companies on what they need to do; for example by encouraging companies to trade water - moving from where it is plentiful to where it is most needed;
• give companies more opportunity to innovate, for example by finding lower cost, lower environmental impact and lower carbon solutions;
• ensure that regulation is focused and targeted on where it is most needed to protect customers;
• be flexible enough so that it can adapt and support the sector as it learns how to tackle new challenges over time; and
• be transparent and predictable to maintain the ongoing confidence of customers, policy makers and investors in the sector.

The regulator said the principles will ensure customers get a fair deal and that well run companies can raise the finance needed to continue to invest in and improve services.

Regina Finn, Ofwat Chief Executive Officer commented:

“£98 billion has been invested since privatisation, service for customers has improved significantly, our drinking water quality is among the best in Europe, and average bills are £120 lower than they would have been without regulation.

“But now we need to become smarter in how we value, manage and use water. This means the industry must focus on customers and show them how they are meeting their priorities.

“These principles will ensure that customers are at the heart of decisions. They need to know that bills are fair and legitimate. And that water companies will deliver sustainable solutions, ensuring safe, reliable supplies for decades to come.”

A more detailed consultation on the methodology to be used for the next price review will be published in autumn 2012.