New Government Guidance will require water industry regulator Ofwat to regularly review and report on the issue of cyclical investment in the water sector and whether its regulatory framework is having an impact on the profile of investment in the water and sewerage sector.
The requirement is included in a set of ten key priorities outlined by the Department of Environment, Food and Rural Affairs (Defra) in proposed guidance to water industry regulator Ofwat which is now out to consultation.
Defra said the Strategic Policy Statement provides the overarching context for the more detailed Social and Environmental Guidance issued to help Ofwat contribute to the Government’s wider social and environmental goals as set out in their sustainable development duty – now brought together to provide a single, consolidated source of guidance to Ofwat.
Introducing the consultation, Defra said that as the independent economic regulator for the water industry, the decisions taken by Ofwat can have significant impacts on the economy, society and the environment. The new Strategic Policy Statement sets out the priorities which Ofwat should keep under review and requires them to report on the steps they have taken in response to this steer.
The Policy Statement. clearly highlights ten directions from the Secretary of State on the key priorities for Ofwat, which the regulator must keep the following under review:
1. The impacts of any changes to the regulatory framework on investment prospects for the water industry. Where proposed changes are sufficiently substantive, the regulator will be expected to provide a thorough assessment of the impact of their proposals on both consumers and investors, including evidence of the costs and benefits.
2. The proportionality of its regulatory framework and the actions they have taken to minimise burdens and reduce costs for business.
3. Whether its regulatory framework has an impact on the profile of investment in the water and sewerage sector. The regulator must also report regularly to the Secretary of State on the issue of cyclical investment in the water sector, building on its previous work in partnership with Infrastructure UK.
4. Its contribution to the achievement of the Government’s sustainable development objectives and report annually to the Secretary of State on the outcomes achieved.
5. The impact of their assessment methodologies, penalties and incentives on activity by water and sewerage sector to prepare for longer-term challenges.
6. The impact of their regulatory approach on the widespread implementation of innovative approaches, such as catchment management schemes, that offer both good value for customers and the potential to deliver multiple benefits. Ofwat must also consider whether the regulatory framework presents any barriers to innovation in this area.
7. The impact of their regulatory approach on the sustainable management of water companies’ water resources and approach to managing their supply demand balance, including in times of drought.
8. Whether companies are taking sufficient action to have a measurable positive impact on the needs of those customers that may struggle to afford their charges and report annually to the Secretary of State.
9. Its approach to promoting the progress of competition in the water sector to ensure this continues to reflect the aims set out in the Water White Paper and the clear boundaries set by Government. It must report annually to the Secretary of State on the alignment of its approach to competition with wider Government policy for the water sector.
10.The effectiveness of the 2014 price determination; assessing its impact against priority outcomes for customers and other stakeholders.
Defra said the priorities, which are not presented in any particular order,are equally important and that Ofwat will be expected to manage any tensions of trade-offs between the priorities and to report on these as part of the periodic reporting process.
Deadline for submission of responses to the consultation is 10th December 2012.
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