Future of the water sector
Water companies are contributing expertise, perspectives and research to inform the debate on the future of water.
The water sector has achieved much over the past 25 years as a result of sustained investment.
- Our beaches and rivers are cleaner.
- Our drinking water quality is amongst the best in the world.
- Leakage has been reduced by a third.
- Customer service has improved.
- Increased efficiency has kept average bills at little more than £1 per day.
Looking forward to the next 25 years and more, the water sector faces challenges from population growth, climate change, tightening environmental standards and changing customer expectations.
These challenges will require both significant further investment and continuing evolution of the sector’s regulatory framework. This will ensure that the water sector can continue to deliver the outcomes customers and society want, efficiently and effectively.
Contributions to the debate on the future of the water sector from companies and water sector organisation are below. This page will update as further contributions are published.
Select a topic below or scroll down to browse all topics.
Anglian Water, Severn Trent Water and Tideway have commissioned a report from First Economics on direct procurement of water industry projects. (March 2017)
Affinity Water has commissioned KMPG to identify potential new business models and new business activities that might emerge in the water and wastewater sectors now and in the future. (December 2016)
Severn Trent Water, Thames Water and United Utilities have considered the role that a System Operator could play in the water sector, reviewing experiences in other sectors and considering what water sector problems a System Operator might address and what forms it could take. (November 2017)
Yorkshire Water has worked with PwC to develop a range of scenarios for the long term future of the water sector, to stimulate discussion on the long term vision for the water sector. (May 2016)
Anglian Water, United Utilities and Yorkshire Water have considered the major long term challenges and uncertainties facing the water sector and their implications for the future of the sector.
Anglian Water has considered future environmental and regulatory pressures the industry may face and how these could inform a broader strategic review of industry needs for the future.
Placing customers at the heart of price reviews is essential to achieving sustainable outcomes.
Southern Water has considered lessons to be learned from the success of customer engagement at PR14 and sets out a vision for the role of customer engagement in the sector.
UKWIR has commissioned Harry Bush and First Economics to consider the future role of customer and stakeholder engagement in the water industry, looking at lessons from PR14 and from experiences of customer engagement in price reviews in other sectors.
United Utilities has considered how to improve customer research and engagement.
Wessex Water has commissioned a report from Frontier Economics to investigate the potential impact of more direct negotiations between customers and companies when setting prices and service levels.
Yorkshire Water has looked at how continuous customer engagement will enable a deeper understanding of customers’ changing priorities over the short, medium and long term.
Affinity Water has commissioned Frontier Economics to consider the future of the Service Incentive Mechanism.
Thames Water has commissioned Deloitte to carry out a statistical exploration of the water industry Service Incentive Mechanism.
Deloitte have reviewed developments in the non-household retail market, considering the shape of the market, company experiences in the initial period following market opening, and prospects for the future of the market.
Northumbrian Water has commissioned Economic Insight to consider the implications of developments in the energy retail market, including the four major competition investigations in the last decade, for the costs and benefits of extending retail competition to household customers in England.
Severn Trent Water has commissioned Economic Insight to consider lessons for potential forms of price controls for household retail from six other regulatory regimes where retail competition has been introduced, including seven issues to be considered in determining the appropriate form of any household retail control.
Thames Water have commissioned FTI Consulting to consider whether household retail competition could introduce counter-party credit risks, and if so, what options might be available to address these risks.
Water UK has commissioned ICS Consulting to consider the potential distributional impacts of household retail competition.
Affinity Water, Anglian Water, South East Water and Thames Water commissioned Artesia to investigate the factors driving differences in household consumption.
Northumbrian Water has considered the role of Outcomes, Performance Commitments and Outcome Delivery Incentives, looking at the role of comparative upper quartile industry performance measures, customers’ preferences, willingness to pay research and issues raised by comparing different levels of service across companies.
Thames Water have commissioned Economic Insight to consider the evolution of the outcomes framework for PR19. As well as Economic Insight’s main report and summary presentation, Thames Water have produced a note of key points they have taken from this report and their own planning work.
Thames Water has commissioned EY to explore the relationships between incentives, cost allowances and rates of return, given the importance of implementing a coherent, reasonable overall risk and reward package for PR19.
United Utilities have considered the balance between measures and targets being set nationally and companies setting their own measures and targets through local engagement.
United Utilities have considered how resilience could be consistently measured across companies, to help customers understand their relative risk exposure, regulators and stakeholders understand and challenge company performance, and companies learn from best practice and drive up standards.
Water UK, on behalf of the 21st Century Drainage Programme, commissioned Atkins to develop and trial wastewater resilience metrics, with a view towards their potential use as common performance commitments at price reviews.
Anglian Water has produced an update to its previous report on botex cost models for the water industry.
Anglian Water has developed botex cost models to consider whether it is possible to model costs for the water industry using econometrics and, if so, how such work can contribute to measurements of historical relative efficiency and forecasts of future expenditure requirements.
Anglian Water has reviewed the use of the totex expenditure assessment used in the PR14 price review and considered the future application of totex assessments to subsequent price control periods.
Northumbrian Water and United Utilities have commissioned Economic Insight to consider options for the assessment of household retail costs at PR19.
Severn Trent Water, working with Tim Keyworth and Reckon, have developed a high-level framework for testing the extent to which different econometric models can be expected to capture underlying drivers for water network plus costs.
Thames Water has commissioned Frontier Economics to analyse how household retail models can best incorporate for customers’ propensity to default on payment of water bills.
Thames Water has commissioned Economic Insight to explore population transience as a driver of household retail costs.
Thames Water has commissioned Economic Insight to consider how input price inflation could be treated within household retail at PR19.
United Utilities has commissioned Arup, supported by Vivid Economics, to carry out an independent study into the impact of exogenous factors on the cost of delivering wholesale wastewater services in England and Wales.
United Utilities has commissioned Arup and Vivid Economics, to extend their research into the impact of exogenous factors on the cost of delivering wholesale wastewater services in England and Wales, providing additional insight and evidence into several key areas of cost assessment.
United Utilities has commissioned Equifax and Reckon to consider the role that deprivation and alternative indicators of arrears risk may have in the PR19 household retail cost assessment.
Anglian Water has considered the role of menus within future price controls, including how companies responded strongly to the incentive created by Ofwat’s “enhanced” status for business plans at the PR14 review and how this affected companies’ menu choices.
Anglian Water has reviewed previous approaches to capital maintenance planning and considered how these may need to evolve going forward.
Anglian Water has considered principles for a future access pricing regime in the UK Water sector, including accounting for different stakeholder views and setting out some alternatives for allocation of the RCV within an access pricing framework.
Severn Trent, working with Oxera, has put forward proposals for reform to access pricing which - they believe - could enable competition to develop without undermining the resilience of the industry.
United Utilities has considered the framework and detailed design for access pricing.
United Utilities has produced a paper setting out its views on the best approaches to upstream pricing.
Severn Trent has commissioned a report from Oxera to consider options for the future treatment of the RCV in terms of cost recovery and remunerating new investment.
South West Water commissioned Frontier Economics to undertake a study to examine the potential options for Regulatory Capital Value (RCV) allocation within the wider context of upstream reform in the water sector.
UKWIR has commissioned FTI Consulting to consider possible options for the future approach to price-setting in the wholesale value chain, including the potential allocation of RCV across the value chain.
United Utilities has considered future approaches to the RCV and how RCV protection may work in practice.
Yorkshire Water has considered the future of the RCV in the context of the challenges facing the industry, looking at the impact on key stakeholders (current and future customers, investors and companies), and identifying areas for further research and analysis to enable the most informed decision to be made for the future of the industry.
Affinity Water, Anglian Water and Northumbrian Water have commissioned KPMG to review Ofwat’s proposed approach to total market returns.
Anglian Water considered potential approaches towards the transition from the use of RPI to CPI as the method of indexation for water sector, and has updated its analysis following the publication by Ofwat of their Water 2020 proposals.
Portsmouth Water commissioned NERA to review Ofwat’s recent consultation on setting the cost of debt allowance for the 2019 price review and in particular Ofwat’s proposed approach to compensating for embedded debt costs.
Severn Trent has commissioned First Economics to consider the implications of alternatives to RPI indexation for the water sector.
United Utilities has considered how changing the basis of indexation from RPI to CPI could be implemented, and commissioned KPMG to carry out an analysis of the potential costs and benefits of a switch to CPI indexation in the water sector.
Water UK has commissioned NERA to assess options for the future use of inflation indices in the water industry in England and Wales, from the perspective of the long term interests of customers.
Dŵr Cymru Welsh Water has produced a discussion paper setting out the case for rolling price determinations in the water industry.
Northumbrian Water has considered factors that are relevant in thinking about whether to change the duration of price controls or stagger control periods, and the opportunities, and implications, for disaggregating and redesigning price control periods.
Thames Water commissioned KPMG to consider issues related to the nature of regulatory interventions and the length of the regulatory period.
Anglian Water commissioned the University of East Anglia to review international experience of price and non-price approaches to manage residential water demand.
Anglian Water commissioned FTI Consulting to assess options for the financing of multi-sector water supply assets.
Southern Water have commissioned Economic Insight to investigate Ofwat’s proposals to transfer demand risk in water resources to water companies, to understand the potential implications for companies and consumers.
Southern Water has proposed changes to the sector’s approach to water resources, to enhance the scope for innovation and competition.
South East Water commissioned Frontier Economics to assess the scope to adapt the water resource planning process to facilitate greater involvement of third party options.
United Utilities has considered how separate price controls for sludge could be developed.
Wessex Water has considered how changes in regulation that would foster greater commercialisation in the sludge sector could drive greater innovation and efficiency.
Water UK have commissioned Frontier Economics, with Professor David Saal of Loughborough University, to assess productivity in the English water sector since privatisation.