Ofwat launches regulatory compliance consultation

Ofwat has today published a consultation document, outlining proposed changes in the way it approaches regulatory compliance, shifting responsibility and accountability towards water and sewerage companies (WaSCs).

The 57-page document details two significant shifts in the regulator’s approach going forward which Ofwat describes as “fundamental to the delivery of our strategy – sustainable water”. Both, Ofwat stresses, are in line with the recommendations of both the Defra review published in July and consumer representation in the water sector, the Gray review.

The first would see devolution of regulatory responsibility, whereby Ofwat will regulate based on results rather than process. WaSCs will be responsible for putting in place their own systems processes and will be held accountable according to pre-determined standards. The aim is to make WaSC accountable to their customers rather than the regulator.

“We want a new approach where companies are responsible for managing their risks and our role is to hold them to account for their delivery to their customers,” says the report.

As part of the change, WaSCs would no longer be required to submit June returns, or to employ independent reporters. Instead each individual company board would be expected to sign off a compliance statement, haven taken responsibility for their own systems and assurance processes.

The second significant change is that Ofwat is proposing to instigate a “risk-based framework” – essentially a prioritisation system. Under the new framework it will closely manage its own resources, acting only where the greatest risks are posed or the greatest benefits can be realised. Under the proposals each action will also need to be signed off at senior level within Ofwat.

The document explains: “This will demonstrate that we intend to conserve resources and target our efforts, so we have the capability to act swiftly and decisively where there is a real risk to outcomes for water users. And the companies and we would be freed from regulatory burden where there are no material risks to consumers.”

Ofwat is also proposing to introduce four key performance indicators – customer experience, reliability and availability, environmental impact and finance. These are intended to act as benchmarks for customers to make direct comparisons between companies, as well as being useful for other stakeholders including investors and Ofwat itself. However, the publication of performance information against these criteria will not be a requirement, simply good practice.

The report suggests: “Those companies that choose to continue to demonstrate good governance, transparency and accountability in the publication of the indicators should benefit from continued confidence from their customers, investors and, of course, regulators.”

Responses to the consultation need to be submitted to Ofwat by January 18 2012.

The full consultation document can be downloaded here.

Will Parsons

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