The Sustainable Water review that Ofwat is currently undertaking is looking at how regulation needs to change to reflect the major change affecting the industry and ensure a sustainable long term business. Ofwat is currently looking at price regulation and its impact on maintaining financial stability, especially the vital importance of reputation to water companies, as well as social sustainability and environmental sustainability.
With external pressures on Ofwat, like the move to smaller government and less regulation and the David Gray review, Ofwat is proposing to take a more risk based approach to regulation. This has to be a sensible move. Its clear the burden of data reporting is getting excessive, for example the June return guidance has gone from about 65 pages to 800! A risk based approach would mean Ofwat only focusing in depth on the vital areas and in others regulating with a light touch.
Directors from the water companies made it clear yesterday that they support the steady evolution from input based regulation through output based regulation (where we are now) to outcome based regulation. They see this as giving more room to water companies to manage their business and focus on what is really important to stakeholders. The difficult bit is defining the outcomes we all want from the water sector in terms that are not so broad as to be meaningless. A move to a risk based approach with clear prioritisation reflects what every good business does and has to be a step in the right direction.
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