Resilience: Challenges and opportunities for the water sector. Rob Cunningham December Trust in water 1

Transcription

1 Resilience: Challenges and opportunities for the water sector Rob Cunningham December 2015 Trust in water 1

2 Overview How we regulate Experience from PR14 Future challenges and Water 2020 Resilience in what we do Next steps Trust in water 2

3 What kind of regulator do we want to be? Outcomesfocused focus on the things that really matter to customers, the environment and society now and in the future. Relationships-focused sector stepping up, taking responsibility for relationships, being open, honest, fair and transparent. Proportionate and targeted focusing our intervention where it is most needed. The sector providing assurance. We step in where necessary to protect customers. Using all the tools in our regulatory tool kit to shine a light on issues and provoke debate. Trust in water 3

4 Experience from PR14 What Ofwat did Removed key barriers Tackled capex bias introduced totex Moved to service providers agreeing outcomes with customers sustainable and innovative delivery Placed customer views at the heart biggest conversation ever; challenge groups As a result Ofwat no longer default customer or second-guessing local knowledge Companies developing solutions with customers that are good for the environment Blueprint for water NGO coalition very supportive of changes to process And Trust in water 4

5 Creating incentives to deliver Internal sewer flooding Maximum industry reward Maximum industry penalty 278m -353m Supply interruptions Maximum industry reward Maximum industry penalty 234m -291m Leakage Maximum industry reward Maximum industry penalty 228m -510m Trust in water 5

6 Delivering outcomes customers want and need Across the sector 43 billion will be spent on improving services A saving of at least 340 million litres a day by tackling leakage and promoting water efficiency An average 40% reduction in the time lost to supply interruptions Cleaner water at more than 50 beaches A target of 100% compliance on drinking water quality A reduction of 1,200 incidences of internal sewer flooding by 2020 Image Environment Agency 6 Trust in water 6

7 but challenges mean the status quo is not an option Achieving affordability and sustainability in the context of these challenges is key. Trust in water 7

8 Resilience through innovation Future challenges and pressures will be high impact but what exact shape and form? Signals the need for a more riskbased approach. Innovative, sustainable, flexible approaches will be key to delivering resilient services. Potential multiple benefits, but returns are less tried and tested than concrete-pouring. Image sufinawaz Multiple benefits also mean multiple players. Trust in water 8

9 And Ofwat doesn t hold all the answers coordination is a key challenge Trust in water 9

10 Water responding to the challenges Trust in water 10

11 Water 2020 priorities and implications for regulation. We will build on the approach in PR14 and drive value creation through an ambitious programme of work. To do this we have identified some priorities for Water2020 (blue box), which gives rise to some possible implications for PR19 (orange boxes). Role of CCG and customer engagement: how to get and maintain genuine customer engagement? How to maintain CCG challenge over time? 2017 retail review should control extend beyond 2020? Can defaults for large customers be abolished? Are margins right across customer bands? Role of the RCV beyond 2020? How to treat existing RCV if wholesale price control disaggregated? How RCV allocation relates to access prices What do we want to achieve now? Sector behaves like it operates in a more competitive market (creating financial and physical value) How? Improved incentives to manage business over longer term (less emphasis on price reviews) with ongoing, dynamic and responsive relationship with customers Companies look beyond their own supply boundary (eg for raw water) Support for the development of markets defined under the Water Act (eg non-household retail) Strong incentives for monopolies to act in customer interest (eg, concept of enhanced companies) Active investors joining the sector How do we set prices to set efficient price signals while also allowing efficient recovery of cost? What costs should we allow companies to cover? Do we have information flows and incentives right? Separate out resources and sludge from wholesale controls? Should RBR have stronger incentives for enhanced and makes better use of resubmission category? Should companies have more at risk to incentivise frontier shift? Trust in water 11

12 The resilience duty The Water Act 2014 introduced a duty to further the resilience objective as one of Ofwat s general duties under section 2 of the Water Industry Act Our general duties are objectives that we must bear in mind (and aim for) when carrying out the powers and duties (functions) to which section 2 applies. The legal duty is to exercise and perform our relevant functions in the manner which [we] consider is best calculated to (among other things) further the resilience objective. The resilience objective is defined as (a) to secure the long-term resilience of water undertakers' supply systems and sewerage under-takers' sewerage systems as regards environmental pressures, population growth and changes in consumer behaviour, and (b)to secure that undertakers take steps for the purpose of enabling them to meet, in the long term, the need for the supply of water and the provision of sewerage services to consumers, including by promoting-- (i) appropriate long-term planning and investment by relevant undertakers, and (ii) the taking by them of a range of measures to manage water resources in sustainable ways, and to increase efficiency in the use of water and reduce demand for water so as to reduce pressure on water resources. Trust in water 12

13 Prompting debate and learning Resilience is the ability to cope with, and recover from, disruption, and anticipate trends and variability in order to maintain services for people and protect the natural environment, now and in the future. Independent T&F Groups Trust in water 13

14 Safeguarding future resilience Ofwat s approach Resilience is not a new concept to the industry or Ofwat but the new duty provides a welcome focus and helps frame our adaptation work. We have a clear role in setting the right incentives for the companies to deliver resilient services for their customers and in promoting long-term planning and demand management in a way that is balanced with out other duties. This will be in the context of our strategy, Trust in water, and the journey we have taken the sector on through PR14 and further develop in Water But we don t actually deliver those services, so there is also a key role for companies, including in developing even further the good dialogue they have with their customers. Customer views are central. We will remain a safety net, but it is for companies to manage the risk to services, in discussion with their customers. Trust in water 14

15 Next steps Publish resilience statement (Dec. 2015) - Setting out how we are taking our duty forward. Consult on key Water 2020 proposals (Dec. 2015) Update Ofwat s climate change adaptation report (Summer 2016) - Building on Ofwat s 2011 adaptation report and emerging company reports. Due summer 2016 Respond to the Committee on Climate Change Rec. 5: Reporting on uptake of SuDS to reduce sewer flooding. Rec. 8: Working with Environment Agency to reduce long-term demand including through WRMPs. Rec 13: Work with UKRN to review reward and penalty schemes relating to weather disruption Trust in water 15

16 Trust and confidence Trust in water 16