Water companies must show customer benefits

Major infrastructure improvements in the water sector in the 2024 Price Review (PR24) will require companies to better demonstrate how any increase in water bills will benefit customers, according to David Black, CEO of Ofwat, at a British Water reception held at the House of Lords, UK on 27 Apr 2023.

Ofwat CEO, David Black

The reception, in its 16th year, was hosted by Baroness Brown of Cambridge, who is chair of the Climate Change Adaptation Committee, which advises the UK government on climate risks and opportunities. The keynote speaker was Black who outlined what lies ahead in PR24 and his expectations for the water sector.

The importance of a step-change in climate change adaptation was the overarching message from Baroness Brown

Brown said that the committee’s most recent report looked at 13 sectors across the UK economy — one of which was the water sector. In the adaptation committee’s assessment of preparedness, the water sector’s policies and plans for service management ranked first.

However, she said, there was still much to done. She added that only two of the 17 UK water companies in England met the water metering targets, and 16 out of 17 did not meet the commitment on reducing customer demand for the second year running. 

Brown warned that the UK water sector is unprepared for climate changes already occurring. She said, “Last summer showed us that we are not adequately prepared. When we got 40-plus° temperatures in the UK we had record deaths, wildfires, droughts and infrastructure disruption, and that will get worse.”

The recent Intergovernmental Panel on Climate Change (IPCC) AR6 Synthesis Report delivered that immediate and bold action is essential to avert a climate crisis, as current efforts are falling short, according to Brown.

Black described what Ofwat is doing to help drive transformation and rebuild trust in the sector, as well as the importance of the supply chain in enabling transformation and how companies can use PR24 as a “springboard for change.”

“A world of social media polarised debates, growing data and increased transparency on performance, means the new normal for the sector is intense scrutiny and a rise in expectations for water companies to provide resilient essential services while protecting the environment,” said Black.

He added: “It is clear that transformation is needed, as the sectors relationship with customers and the environment is not where it needs to be.

“The sector is expected to step up environmental performance, improve resilience and asset health at a time when customers are facing a cost-of-living crisis. It is clear large-scale investment is needed to improve the sector and Ofwat’s assessment in the last price review (PR19) showed several companies were behind on the delivery of their plans.”

Black said Ofwat was committed to working with other regulators such as the Environment Agency and Drinking Water Inspectorate, and organisations like the Consumer Council for Water, to help water companies improve performance. Ofwat recently published its proposal to accelerate £1.6bn in PR24 investment, including work on storm overflows and increasing smart metering.

Meanwhile, the regulator has gained new powers under the Environment Act, which will enable it to stop dividends where it threatens company resilience and to require companies to link payment dividends to customer and environmental performance. Ofwat is also progressing 12 water resource schemes, including three new reservoirs. 

“We know there are growing concerns about vulnerability and affordability, the rise in inflation and the fallout from the pandemic have had a long-term impact on many households. We hope to see water companies look for more innovative ways to make bills affordable as it’s clear from the PR24 price review that there needs to be major investment.”

Around 180 guests attended the event, comprising member companies, sponsor partners and key industry figures. The event is held annually by British Water to help raise the profile of the UK water industry and address sector challenges. 

British Water’s upcoming conference Addressing the Skill Gap on 22 Jun 2023 will see experts from within the water industry and adjacent sectors explore how to make the sector attractive to recruit and retain a diverse talent pool and commit to firm action.