Guidance drafted on Ofwat’s environmental, social responsibilities

The Environment Department (DEFRA) has issued guidance to water regulator Ofwat on its social and environmental responsibilities, particularly with reference to the government’s Future water strategy.

There have been concerns that water industry regulator Ofwat is overly focused on financial management of the sector and that some of its decisions paid insufficient attention to wider impacts.

Government promised to address this concern when it was preparing the Water Act 2003. It said it would produce guidance on social and environmental issues for Ofwat, and used the 2003 Act to insert a legal requirement for this guidance in the Water Industry Act 2001.

Now DEFRA is consulting on a draft of that guidance, with responses required by 30 April. The consultation document recounts the guidelines that the regulator is already bound to consider. Ofwat must contribute to sustainable development - a duty imposed by the 2003 Act and expanded by the government’s Securing the future sustainability strategy.

Ofwat must also have regard to the conservation of biodiversity and protection of Sites of Special Scientific Interest, as required by the Natural Environment and Rural Communities Act 2006.

In addition to existing responsibilities, the guidance outlines areas where Ofwat will help deliver the government’s Future water strategy released in February (see pp 37-38 ). These include:

  • Fairness and affordability of charges: Ofwat has a duty to ensure high standards of service at reasonable cost for customers in the absence of effective competition between water firms. However, it also has statutory responsibilities towards vulnerable groups such as pensioners and those on low incomes. The regulator should also monitor the impacts of water charging on groups of consumers, and encourage firms to develop tariffs that address affordability concerns. Ofwat must also protect customers by promoting effective competition in the market and act against anti-competitive behaviour.
  • Climate change mitigation and adaptation: The government expects to see continuing reduction in water firms’ carbon footprints. Its main tool is the Carbon Reduction Commitment and Ofwat is urged to ensure that companies "are fully exposed to the scheme’s financial incentives". Ofwat should also ensure firms use the shadow price of carbon to analyse the costs and benefits of their programmes (ENDS Report 396, pp 30-33 ).

    On adaptation, the government is to propose a national policy framework with regional solutions as outlined in the Climate Change Bill. Ofwat is expected to have regard to the strategy and ensure companies do likewise.

  • Surface water drainage: Ofwat is expected to play "a significant role" in the sustainable management of surface water as outlined in Future water (see below). It should encourage firms to participate with local authorities and others in preparing surface water management plans. Companies will also be required to ensure the security of essential plant from flood risks.
  • Water quality: The guidance requires Ofwat to help firms contribute to river basin management planning. Perhaps more significantly, it says the regulator should "support companies who wish to adopt innovative approaches to improving water quality, including working with land managers to control diffuse water pollution at source, where this is of benefit to water customers". The requirement may allow funding of more catchment-based water quality initiatives such as United Utilities’ moorland restoration project SCaMP (ENDS Report 378, pp 20-21 ).
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