Water firms instructed to slash bad debt

Ofwat’s latest price review consultation includes a series of demands on water companies in areas such as debt management and billing.

Water firms instructed to slash bad debt

Water regulator Ofwat published its draft methodology for the 2019 price review (PR19) in July but will set the final price limits in December 2019.

The decisions made in PR19 will affect the prices water companies can charge their customers as well as the investment and service package customers receive. As part of the review, Ofwat has requested companies to do more to reduce bad debt, by reducing the burden on those who do pay, which is often left by those who won’t pay.

The regulator said this review provides the framework for a resilient long-term future for water, providing more of what matters to customers at a price they can afford and are willing to pay.

It plans to deliver the review in a way that incentivises companies to be innovative and ambitious. It also aims to make greater use of markets where appropriate, together with proportionate and targeted regulation to ensure companies deliver the things that matter most to their customers.

The methodology sets out:

  • Ofwat’s expectations and requirements for companies preparing their business plans to meet the needs of their customers from 2020 to 2025 and beyond;
  • How these expectations form the basis of tests that Ofwat will use to assess company business plans;
  • The approach Ofwat will use if it needs to intervene in plans to ensure companies deliver the change required by customers;
  • How Ofwat’s assessment will flow through into companies’ price limits, service commitments and the wider incentive framework.

As part of the draft methodology, Ofwat expects companies to offer value for money when billing and to challenge themselves to “push the efficiency border”, to provide further scope for price reductions.

As for innovation, the regulator said it will enable and drive innovation in the sector by rewarding performance that sets new standards for the sector.

Where appropriate Ofwat will promote markets to encourage innovation through water trading, the bio-resources market and greater third party involvement in large projects through direct procurement.

Ofwat recognises that the UK government’s decision on the implementation and timing for extending competition into the residential market remains uncertain. Therefore, it has proposed to keep setting price controls for the residential retail activities of water companies to protect the interests of customers.

Ofwat will publish its final methodology in December this year. Businesses will then have until September 2018 to submit their business plans to the regulator, which will be assessed by and redrafted, if needs be, by Ofwat until it publishes its final determinations in December 2019.