Ofwat’s forward programme includes plans to start work with the Water Industry Commissioner for Scotland on the development of a joint Anglo-Scottish retail market and a review of the water and wastewater companies’ operating licences.

Yesterday the regulator launched a formal consultation on its draft 2014-15 forward work programme - Ofwat is now inviting stakeholder comment on the programme and will use the responses to finalise the plans. Deadline for responses is 11 February 2014 and the final forward programme will be published by 31 March 2014.

The draft forward programme of work for 2014-15 sets out the core projects the regulator is proposing to deliver over the coming year, including:

• Delivering the 2014 price review and continuing to encourage companies to place the needs of customers at the heart of their business plans for 2015-20.
• Challenging companies to deliver an even greater focus on their customers and to meet high standards of corporate leadership, governance and transparency.
• Looking to secure the best outcomes for customers who are dissatisfied with service from companies by, for example, working with the sector to establish an alternative dispute resolution process that will help to ensure complaints are dealt with quickly and effectively.
• Carrying out prudent preparation for the changes to the sector proposed by the UK Government’s Water Bill - including work necessary to allow all non-household customers in England to choose their supplier of water and wastewater retail services from April 2017 onwards.
• Playing its part to ensure that the efficient companies can attract debt and equity investment with a long-term horizon and an appropriate approach to risk and return in financing both asset infrastructure and retail services.

Ofwat said it is also planning to develop a new strategy for how it regulates the sector over the long term.  Ofwat wants the new strategy, which will be developed over the next 12 months in dialogue with stakeholders, to provide direction for the next five years by the time of the next price control period.  The new strategy will replace ‘Delivering sustainable water – Ofwat’s strategy’, published in March 2010. The regulator will consult with stakeholders on the draft strategy in early 2014, with the final strategy to be published in autumn 2014, following further stakeholder engagement.

The regulator has set out the following key dates for the programme in 2014-15:

Quarter 1 (April to June)

• All regulated companies to have voluntary code of practice on governance on 1 April 2014 
• Publish a commentary on what Ofwat has seen in companies’ codes of practice, highlighting areas of best practice and areas where there is room for improvement 
• Announcement of companies’ business plan ratings for the 2014 price review
• Publish draft determinations and menus for companies with enhanced business plans
• Publish baselines and draft menus for companies with standard and resubmission business plans 
• Publish its final approach to charging issues and the service incentive mechanism 

Quarter 2 (July to September)

• Consultation on how to  achieve a level playing field in water and wastewater markets 
• Publish final menus and draft determinations for companies with standard and resubmission business plans 

Quarter 3 (October to December)

• Publish final determinations for all companies 
• Publish new Ofwat strategy 

Quarter 4 (January to March)

• Publish a decision statement on Ofwat’s approach to ensure a level playing field 
• Consultation on changes to monopoly companies’ licences to remove the ban on them trading in their area with their associate companies that compete in water and wastewater markets 
• Consultation on developing the information published by monopoly companies on the different parts of their businesses 
• Publish updated guidance on which customers will be considered eligible to choose their retail water and wastewater supplier 
• All regulated companies to fully meet Board leadership, transparency and governance principles – as a minimum – by April 2015 
• Establish a roadmap and approach for conducting licence review work 
• Refer any companies’ final determinations to the Competition and Markets Authority
• Consultation on review of special administration arrangements

Possible joint England-Scotland retail market

As part of its work with the Open Water programme on choice and trading arrangements to develop market arrangements to allow all non-household customers to choose their retail supplier, Ofwat also plans to work with the Water Industry Commission for Scotland (WICS), the UK Government and the Scottish Government to take steps towards a possible joint England-Scotland market for retail water and wastewater services. This will include agreeing joint licensing arrangements.

Ofwat said that based on the experience of a similar market in Scotland, the expanded market for retail services in England is expected to increase significantly water efficiency by non-household customers.

New standards for holding companies

Commenting on its proposed work on Board leadership, transparency and governance, Ofwat said that in order to take a less intrusive approach to regulation it needed to have confidence that regulated water and wastewater and water only companies ‒ and any holding companies that own their shares ‒ are acting in the public interest and that their leadership, transparency and governance reflects this.

In September 2013, Ofwat published ‘Board leadership, transparency and governance – principles’, which set out the standards the regulated companies would be expected to adopt as a minimum. This also set out the expectation that all regulated companies will have voluntary codes of practice which set out their approach to governance in place by April 2014. Ofwat is now planning to publish similar principles for holding companies in early 2014. Where companies’ owners change, the regulator said it will also make sure that new investors adopt high standards of Board leadership and governance that meet its principles as a minimum.

Licence review in 2015

Between January-March next year Ofwat is also planning a review of the existing licences which set out the terms and conditions the regulated companies must comply with in order to provide water and wastewater or water only services. The regulator said that over time, the licences have become increasingly complex and some parts are now obsolete. Ofwat wants to make them clear and concise, with obligations that are effective and appropriate to the evolving regulatory framework and the Water Bill. The regulator also wants to put a modular licence structure in place that reflects the activities that companies operating in the sector carry out.

Thames Tideway Tunnel to "cost no more than it has to"

The forward work programme also contains plans for Ofwat to progress work on Thames Water’s Tideway Tunnel project aimed at ensuring that:

• Thames Water and any third party infrastructure providers are accountable to the company’s customers.
• the Thames Tideway Tunnel costs no more than it has to and the best value for money is achieved;
• the risks of the Tunnel are properly separated from Thames Water’s appointed business so that the financing of the appointed business is not exposed.

Ofwat said it would work with Defra, the Environment Agency, Thames Water and other stakeholders to identify the most suitable implementation and financing model for the Thames Tideway scheme that ensures it is delivered effectively and efficiently, costs no more than necessary and that customers get the best value for money possible.

Ofwat said the project would help to deliver the development of an alternative funding and delivery approach that could deliver better value overall for customers than Thames Water financing and delivering the tunnel itself. It would also help to maximise competitive pressures in the water sector in a way that the current regulatory framework cannot achieve by developing a third party infrastructure provider model to finance and deliver the Thames Tideway Tunnel.

Commenting on the potential impacts on sector investment prospects, Ofwat said:

“In developing a third party infrastructure provider model to deliver the Thames Tideway Tunnel, we are mindful of the need not to create any undue regulatory uncertainty in the model. The project aims to develop a new finance and delivery model that will allow targeted regulation through a bespoke form of licence and regulation rather than a ‘one size fits all’ approach.”

“The project’s work is enabling investment in resilient networks by developing an alternative delivery and funding model to deliver a major infrastructure project to bring the River Thames into compliance with the Urban Wastewater Treatment Directive and provide necessary capacity in the sewer network for current and future generations.”

Deadline for responses to the consultation on the Programme is 11 February 2014 and the final forward programme will be published by 31 March 2014.

Click here to download the draft programme in full.