OFWAT 20 years of regulatory failure

Today’s claims from the water industry regulator CEO David Black that they have set challenging targets for water companies to drive down leakage and end the scandal of wasted water has triggered a strong response from the Angling Trust who have accused OFWAT of presiding over ‘20 years of regulatory failure’.

The Trust have today published figures drawn from OFWAT’s own data showing clearly that for many years they gave water companies a ‘licence to leak’ with the introduction in 2002 of their ‘economic leakage level’ (ELL) criteria. Under the OFWAT rules, which remained in place in various guises until 2019, leakage plans put forward by the industry would only be approved if the value of the water lost to leaks outweighed the cost of repairing those leaks. In other words the environmental consequences of wasting water were discarded as irrelevant in favour of screwing down water bills.

Prior to the introduction of the discredited ELLs system, strict targets were introduced following the 1995 drought which saw significant reductions in leakage levels. The impact of ELLs saw leakage first rise and then fail to fall appreciably until a new target-setting regime was reintroduced as part of the 2019 price review for the industry.

As well failing on leakage OFWAT has failed to approve investment for the new reservoirs the country needs to cope with both climate change and population. No new reservoirs have been opened since the water industry was privatised in 1991 and since that time the population of the UK has expanded by over 10 million.

Angling Trust Policy Chief Martin Salter said:

“The way water in this country is managed and regulated is a complete and utter shambles and OFWAT have been a major part of the problem. For years they gave water companies a licence to leak while ministers failed to demand the levels of infrastructure investment needed to enable us to store water in times of surplus in order to protect consumers, the environment and the economy in times like these. For years OFWAT were happy to see water wasted and were a block on building new reservoirs. They are just one part of botched water privatisation that is clearly not fit for purpose.”

Stuart Singleton-White, Head of Campaigns at the Angling Trust added:

“The comments from David Black were both disappointing and insulting to all of us who have been campaigning to protect our rivers, whether that is from the devastating impact of the drought or the chronic problem of pollution. The reality is OFWAT are complicit in our broken water sector and seems to be acting as an apologist for a situation that it bears responsibility for creating. The facts are there for all to see and show that the water regulator has prevented a lot of the investment needed and allowed companies to take huge profits, put public supply at risk and to screw up the health of our rivers.”

NOTES ON ELLs

The change to ‘ELL’ based targets was in about 2002 and reflected a change in regulatory policy. It’s notable that all companies in England and Wales met their targets from 2007-08 through to 2010-11 illustrating a zero impact on leakage levels.

The chart below shows the history of leakage targets. OFWAT brought in ‘economic level of leakage’ targets in the early 2000s. The chart is for both England and Wales.