Report: Ofwat Price Review 2009

22 July 2009

Ofwat must balance the requirement for sustainable water supplies with bills that are affordable for consumers, say MPs in their report about the latest water industry price review.

Launching 'Ofwat Price Review 2009', Environment, Food and Rural Affairs (EFRA) Committee Chairman, the Rt. Hon. Michael Jack MP, said:

"Affordability is a key issue. Consumer bodies and water companies recognise that more customers are struggling to pay their water bills. This trend could increase unless Ofwat’s remit is strengthened so that it can establish the scope and size of the problem and so that it can pursue innovative solutions. Water companies must do more to help customers reduce their water bills or access financial support.

"Defra and Ofwat must always consider how changes to the regulatory regime will impact on water companies’ ability to raise the funds necessary to continue to invest in water infrastructure."

Looking to the next periodic price review in 2014, the Committee calls on Defra to review Ofwat’s entire remit so that the regulatory regime will keep pace with the changes set to follow from greater competition and the challenge posed by scarcer water resources.

On the matter of surface water drainage, MPs conclude that Ofwat should have intervened to ensure a more measured set price increases for this service were levied on sports clubs, churches and voluntary organisations by water companies in recent months.

On a related theme the committee argues that customers who install sustainable drainage systems should in turn be eligible to benefit from lower water tariffs. MPs also ask Ofwat and the Government to explore how the costs of highway drainage – currently born by water customers - could be shared with local taxpayers who benefit from the service.

Citing the uncertainties created by the Cave and Walker reviews (both of which reported during the current Price Review) along with changes to the regulatory regime proposed in the draft Flood and Water Management Bill, the Committee concludes that all may have hampered the ability of water companies to raise money on the capital markets in a manner likely to push up customer bills.

Warning of water scarcity in the South and East of England, the committee calls for the creation of a ‘water efficiency obligation’ to ensure the regulatory regime emphasises the need to preserve resources and to rewards customers who install efficiency measures.

On water metering, the Committee warns that Defra must set out a clear case for more extensive use of an approach that is expensive and may have only limited benefits. "Metering is no substitute for a robust approach to promoting water efficiency," adds Mr Jack.

Regards the uneven regional impacts of investment in water infrastructure required to meet environmental standards that benefit the entire nation, the Committee calls for Defra to investigate a fairer system of payment for such investment to spread the burden more evenly across all consumers in England and Wales.

Concerned about the impacts of climate change the Committee calls on the regulator to assess whether investments to protect critical infrastructure against flooding should be paid for by the water customers or water companies.

MPs also focus on the issue of transparency, from the price review process itself to how well Ofwat currently requires companies to demonstrate they undertake effective consultation with consumers during business planning. On a related issue they also call on water companies to provide a far more accurate picture of bad debt, most specifically, which of which customers simply refuse to pay, how many cannot afford to do so and what proportion of bad debt is 'virtual' debt assigned to vacant properties.

Lastly, MPs question the decision to move to greater competition (as recommended by the Cave review) and call on DEFRA to provide far more detail on how extra competition will work, how it may shape the industry in the future, what risks will arise from such changes and how they will be managed.

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