| Summary
The 2004 review of water prices is an important process for water companies, their customers and other stakeholders, as it will determine water bills until 2010 and hence, to a large extent, what the companies can be expected to achieve during that period. At the time of publication of this report, Ofwat has not yet announced the final determination of price limits, so we have not commented in detail on the determination. Nevertheless, this is a good opportunity to examine the conduct of the review and identify some issues that Ofwat and its stakeholders should examine in the evaluation of the review process planned for early 2005.
A key issue for stakeholders is the transparency of the review process. Customers must be able to see what they are paying for and why. We commented in an earlier report that the early stages of the review process were more transparent than in previous rounds, which we welcomed. However, as the review has entered its final stage, this transparency has become somewhat clouded. It is not yet clear what customers can expect the water companies to provide. We hope that this uncertainty will be resolved on publication of the final determination, but we recommend that Government examine the process, both to check that the final determination adequately reflects the statutory requirements placed on companies and to identify ways that 'horse trading' can be reduced in future rounds.
We repeat our earlier recommendation that Government must do more to address the causes of water pollution and flooding and that, where these are not the responsibility of water companies, water customers should not pay for the solutions. Similarly, the problems that water companies face due to climate change may need to be addressed in other ways.
The Government must address the growing difficulties being faced by people on low incomes in paying their water bills, particularly in regions with the highest bills. It will not be enough to adjust payment mechanisms; the underlying difficulty in meeting the cost must be tackled.
Finally, the Government must examine the long term risks, including climate change, faced by the water industry and identify means of managing them.
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