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Ofwat is responsible for setting price limits that allow the 22 principal water companies in England and Wales to meet future demands for water at the lowest cost to the consumer. Following the dry winters of 2004-05 and 2005-06 eight companies applied water restrictions.[1] Predictions of housing growth mean that, despite the wet winter of 2006-07, future demand for water is likely to exceed supply in many parts of England and Wales unless action is taken. To meet these challenges, Ofwat needs to make changes to its regulatory system, in particular on water efficiency, data quality, and enforcement.
Ofwat does not understand clearly how consumers use water and has not collected enough robust evidence on which water efficiency projects are most effective in helping consumers to use less water. Ofwat needs to divert more of its attention to water efficiency and gain a better understanding of consumers' behaviour.
Ofwat currently depends on unreliable data with regard to both supply and demand. It has made some progress since the Committee's 2002 recommendation that Ofwat examines how estimates of leakage—and the economically acceptable level of leakage—can be made with more consistency and precision. But there is still too much uncertainty. Ofwat also needs much better data on per capita consumption. Estimates for this, even within the same region, range between 124 and 177 litres per person per day.
Ofwat has had some success in encouraging sustainable investment by companies. It has been weak, however, in using sanctions against companies that under-perform against their commitments to meet all reasonable demands for water, while limiting environmental impacts. It was, for example, very slow in taking action against Thames Water for persistently failing to meet its leakage targets and decided against imposing a fine on the company, despite having the powers to do so.
On the basis of a Report by the Comptroller & Auditor General, the Committee took evidence from Ofwat on its role in regulating the water companies in England and Wales, focussing in particular on water efficiency, data quality, and enforcement.
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