CONCLUSIONS AND RECOMMENDATIONS
Transparency of the review process
1. We are disappointed that Ofwat
felt it could not be clearer about which maintenance and improvement
programmes were allowed for in its draft determination of price
limits. We hope that this is resolved in its final determination
of price limits, in order that customers and other stakeholders
may have the clearest possible understanding of what they can
expect water companies to deliver. If Ofwat chooses not to present
this information, it should write to us explaining its decision.
(Paragraph 11)
2. We recommend that
Ofwat considers WaterVoice's suggestions for clearer ways to explain
to customers the impact of changes in price limits during its
evaluation of this price review. (Paragraph 13)
3. The controversy
over the cost of the environment programme risks giving the impression
to customers that water bills are a source of investment for environmental
work, albeit vital work, that it would otherwise be difficult
to fund. There is no perfect way of presenting information about
these costs, but Ofwat should consider how information can be
presented to give customers the most accurate possible picture
of the costs of and reasons for the environment programme and
how they contribute to the overall bill. The Government should
also consider making a statement at the start of the process stating
in clear terms details of the environmental legislation which
the water companies will have to comply with over the five-year
period of the pricing review. (Paragraph 15)
4. We are particularly
disappointed that the Government has been slow to address the
problems of diffuse water pollution and flooding caused by urban
run off and that as a result the costs of these problems fall
on water customers. The Government should consider whether charging
via water bills is the most equitable way of funding the effects
of these environmental challenges as well as the impact of climate
change. The Government should make clear, at the earliest opportunity,
its plans for solving these problems. (Paragraph 16)
The respective roles of Ofwat, the quality regulators
and Defra
5. As the price review system stands,
it is not for Ofwat to determine the content of the environmental
and quality improvement programmes. We are concerned that, if
the final determination does not fund statutory requirements,
those companies will apply for further increases in their price
limits before the next review. This would undermine the value
of the price review process. We recommend that the Government
examine closely how the regulator has responded to its guidance
and to what extent statutory schemes have been allowed for in
the price limits. (Paragraph 19)
'Horse trading'
6. We accept that an economic regulator
for an inherently monopolistic industry like the water industry
can never be a perfect surrogate for market competition. However
we are concerned that the bidding process seems to result in such
stark differences of opinion over costs, value for money and the
scope for efficiency savings that the regulator, in his draft
determinations at least, halved the bid set out by the companies.
We recommend that the Government re-examine the methodology of
the bidding process to identify the reasons for the striking differences
between the companies' and the regulator's positions. (Paragraph
21)
Sewer flooding
7. We accept that it may not be possible
to address every property at risk of sewer flooding, but we are
concerned that the problem appears to linger on from price review
to price review, leaving a backlog of properties waiting to be
addressed. This is of particular concern given the likelihood
of increased risk of sewer flooding identified in the Office of
Science and Technology's Foresight report on flood risk and climate
change. We recommend that companies prioritise action in those
areas at highest risk and that, in examining the cost-benefit
ratio of plans presented by the companies, Ofwat consider the
distress and inconvenience of those affected as well as economic
damage. (Paragraph 24)
Affordability
8. We await with interest the review
of the Water Industry Charges (Vulnerable Groups) Regulations
and the cross-Government review of the ways in which low-income
groups are helped with their water bills. However, we wish to
make clear that we believe that many people on low incomes will
have spent too great a proportion of their income on water. Adjusting
the mechanisms for making payments would benefit some customers
and would be welcome as an interim measure. But the Government
should also consult on ways to reduce the charges paid by the
poorest and on ways that the assistance offered to those on low
incomes can reflect the great regional differences in water bills.
(Paragraph 31)
Long-term issues
9. We are still concerned that the
five year cycle will tend to delay expenditure until the problems
become urgent. We recommend that Ofwat, the water companies and
the Government use the opportunity of Ofwat's evaluation of the
price review process to assess the long-term risks and challenges
that the water industry faces and report back to us on how coping
with these risks will be funded. (Paragraph 33)
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