26/02/10
"There is a genuine question as to whether a system of economic regulation set up to extract maximum efficiencies at the time of privatisation is still the right system twenty years on."
So said water minister Huw Irranca-Davies to more than 130 stakeholders at the Water UK City Conference in London yesterday.
Mr Irranca-Davies praised the achievements of the industry and Ofwat but went on: "Today we are faced with challenges such as climate change and water affordability that were not on the radar in 1989."
The minister said that he was "strongly minded" to bring forward a review of Ofwat's role and remit.
The key questions were whether Ofwat's remit should be widened to include new social and environmental challenges, whether it should be pared back to focus only on economic regulation, or whether the middle-ground approach we have now with a hierarchy of duties is the right approach.
Encouragingly, given the massive investment needs of the sector, he said that maintaining the credibility and predictability of the regulatory regime would be a priority, in order to protect the sector's reputation in the City.
Mark Barnett from Invesco Perpetual (the largest institutional investor in the quoted water companies) gave delegates a timely reminder that the support of investors should not be taken for granted. He expressed concerns that in an effort to win populist support and generate positive headlines the regulator has overlooked the economic agenda of the companies and their owners.
Ofwat chief executive Regina Finn gave a robust defence of the 2009 price review. Ms Finn described the regulator's own future programme on regulation and sustainability, to be explored at a workshop next week.
Contact: Rob Wesley
