The process will examine how the industry regulator works, whether it offers good value for money and if it is delivering what the Government and customers expect.
The economic regulator was set up 20 years ago, at the time the water industry was privatised, to ensure customers receive good services at a fair price. The independent body can take action against companies that fail to deliver this.
Environment Secretary Caroline Spelman said: “Ofwat has been successful in holding down household bills while water companies invest in their infrastructure.
“But we need to make sure the regulator is in good shape to help the industry prepare for a changing climate and a growing population, at the same time as keeping bills affordable.
“It’s important to reassure water companies and bill payers that Ofwat provides good value for money by carrying out its duties without unnecessary red tape.”
Defra have engaged David Gray to act as lead reviewer. Mr Gray brings with him recent experience from the Department for Transport’s review of airport regulation and widespread knowledge of financial markets, government and utility sector regulation.
The review team will call for evidence to give customers, water companies and their investors a chance to influence the review.
The process, due to be completed early next year, will examine the role of Ofwat. This will include its objectives, its responsibilities, and how it will meet future challenges and ensure value for money. The review will also look at how well the current arrangements, involving Ofwat and the Consumer Council for Water, work in protecting water customers and in making sure their views are heard.
Defra is also due to publish a Water White Paper early next summer which will set out policies for the future of water management.
- The Coalition Agreement committed the Government to reform the water industry to ensure more efficient use of water and the protection of poorer households.
Ofwat (the Water Services Regulation Authority) is a non-ministerial government department but directly accountable to Parliament and the Welsh Assembly Government. Ofwat was established in 1989 when the water and sewerage industry in England and Wales was privatised.
The Consumer Council for Water (CCWater) was set up in 2005 to act as an independent champion for water and sewerage customers in England and Wales. It is a non-Departmental public body sponsored by Defra and the Welsh Assembly Government. CCWater is made up of a statutory board and four Regional Committees in England and a Committee for Wales. The Committees represent the views of consumers to their local water companies and handle customers’ complaints about water companies.
The review will be run within Defra but led by an external reviewer, David Gray. Mr Gray is an experienced regulator and advisor in the utilities sector with wide-ranging knowledge of financial markets, government and regulation. He is currently a non-executive director of the Civil Aviation Authority and a member of the Council of Management of the Regulatory Policy Institute. Mr Gray worked for Ofgem as Managing Director, networks and was an executive member of its board, the Gas and Electricity Markets Authority. He sat on the advisory board for DfT’s review of the economic regulation of the UK airport system. He has previously worked in a number of senior positions in the equity research and corporate finance divisions of HSBC. Mr Gray also advised the Government on the privatisations of British Gas and the Electricity industry in England and Wales.
The review will reflect on the Government’s objectives for independent economic regulation of the water sector, the boundary of responsibility between Ofwat and Ministers, and the statutory framework Ofwat operates in. It will examine Ofwat’s governance and decision making processes, and its relations with other water regulators and water and sewerage companies.
The review will also consider how effective the current arrangements, involving Ofwat and the Consumer Council for Water, are in protecting water consumers and ensuring that their views influence the way the water sector is managed and regulated.
The review of Ofwat will feed in to the Water White Paper planned for summer next year.
It will also draw on recent work on economic regulation by the Better Regulation Executive, Infrastructure UK and across Government. The review will work closely, where appropriate, with the review of Ofgem (announced on 27 July) to share learning and maximise efficiency. Ofgem, the Office of the Gas and Electricity Markets, protects consumers and regulates monopoly companies which run the networks.