A vision for the future

Cathryn Ross, Chief Executive

4
Thank you for coming
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Sharing our
emerging thinking
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Developing Ofwats new strategy 4 J une 2014
A vision for the future speech by Cathryn Ross, Chief Executive

A vision for the future speech by Cathryn Ross, Chief
Executive
Thanks and scene setting, setting the tone
Thank you for coming today.
Thank you also for being so generous with your time and energy in the months
gone by.
I have listened to what you said. And I hope you will hear a lot of it reflected back in
what I will set out today.
What I will set out today is our emerging thinking on Ofwats strategy. It is not a final
finished product. It is not the end of a conversation. But it is an inflection point.
Today I will share our thinking on the vision for the water and wastewater sectors.
And I will share our thinking on what this means for the vision for Ofwat how we
can help move the sector to where it needs to be.
There may be some elements of this that you will want to challenge, build on and
explore. And I would welcome that.
But I hope it will be clear from what I say that Ofwat itself, alone, will not deliver that
vision for the sector. Everyone in this room has a critical role to play.
And it is only if we understand each other, only if we at least understand our
interdependency and or preference work with it that we will deliver that vision.
So, when I talk about an inflection point this is the point at which we really need to
understand what you make of our emerging thinking, have we got it wrong,
missed anything critical? And crucially, we need to understand what this thinking,
this way of working for Ofwat, means for you: what will be the benefits and how
do we maximise them? What are your concerns, what are the risks and how do we
manage them?
The high-level vision
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Trust and
confidence in an
essential public
service
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Developing Ofwats new strategy 4 J une 2014
A vision for the future speech by Cathryn Ross, Chief Executive

The high level vision why and what
Some people have asked me why Ofwat needs a vision for the sector. Doesnt Ofwat
just need a vision for Ofwat?
Well, we do need a vision for Ofwat
...but as an economic regulator we influence the behaviour of those we regulate
and so we must know to what end we do that.
The vision for the sector is our touchstone something that guides us as we think
about what we do, day to day, month to month, year to year.
What is that vision for the sector?
It is simple. Trust and confidence.
Trust and confidence in the quality of our drinking water.
Trust and confidence in the resilience of services, that they will be value for
money, and affordable.
Trust and confidence in customer service, in fair dealing.
Trust and confidence in the stewardship of the environment.
More generally, trust and confidence that decisions taken today wont
impoverish future generations.
Im sure you can think of other aspects where trust and confidence is key.
Indeed, from the conversations that I have had with a lot of you in the last few
months it is a theme that has come up time and time again. J ust how important it is
that people have trust and confidence in water and wastewater services
recognising that there is a difference here with other goods and services in the
economy, that these are essential public services. Recognising that while a lot
has been achieved since privatisation, that the sector is not in a bad place trust
and confidence is hard won and easily lost none of us can be complacent.
One of the virtues of trust and confidence as a vision is that it will endure it will
provide that guiding light over time. But I am conscious that it could sound somewhat
like motherhood and apple pie so lets unpack it.
Unpacking the vision for the sector
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Customers
Service providers
Relationships
Whole system
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Developing Ofwats new strategy 4 J une 2014
A vision for the future speech by Cathryn Ross, Chief Executive

Unpacking the vision for the sector some pointy bits
One thing is absolutely clear whether people have trust and confidence in water
and wastewater services will reflect their experience of those services. What they
get. The outcomes they see.
If people are not getting what they need, want and can afford. It is very tempting
perhaps especially for those who have just done business plans to think that they
know what customers want. And it is true that you only have to look at those
business plans to see that there are some common themes: Resilience, value for
money, affordability, responsiveness, care for the environment and for future
generations, care for those in society who are vulnerable.
But it is also clear again you just have to look at those business plans that
different customers have different priorities. And that those priorities change over
time. So it isnt as simple as ticking off a list of outcomes and then people will have
trust and confidence in water and wastewater services.
In fact, Id go further and say that that kind of tick-box list would be positively
dangerous because it would work against the precisely the sort of responsiveness,
evolution and innovation that we will need to meet changing customer expectations.
Which brings me to another driver of trust and confidence. Strong relationships.
The most obvious relationship here is between those who provide water and
wastewater services and their customers. This will come as no surprise we have
put this relationship absolutely at the heart of PR14.
Again, it sounds simple. But it is worth unpacking.
Who do we mean when we talk about customers?
Bill payers now obviously. Bill payers in the future only slightly less obvious
perhaps. But we also recognise that the environment is a customer. And that society
more widely benefits from water and wastewater services. It is important to
recognise this.
Who are these service providers? Is that some fancy new term for a water
company? Water companies are certainly service providers. But there are two
important points to make here.
Developing Ofwats new strategy 4 J une 2014
A vision for the future speech by Cathryn Ross, Chief Executive

First, it is important that we start looking at water companies in terms of the services
they provide. Because that is what customers experience. Because we need to start
looking at the sector much more through the customer lens rather than the producer
lens. In PR14 we have been talking a lot about an outcomes-focused approach. That
must mean looking through the customer lens looking at services.
Second, it is important that we recognise that services may be provided in different
ways by different providers. And we need to recognise that services are provided at
different stages of the value chain to different customers. A retail business buys
wholesale water and wastewater services from a wholesale business. Who in the
future may or may not be part of the same company. Lets go further a farmer in a
catchment may provide a service to that catchment through the way in which he
manages the land which is what we are seeing through catchment management
approaches, where that service is being procured by a wholesale water business.
The way in which these service providers interact with their customers is critical,
partly because strong relationships here will help deliver the outcomes those
customers want by informing the decisions of the service providers but also by
involving customers so they become part of the solution. But partly also because if
we want trust and confidence those customers need to feel that their service
providers are acting fairly, and engaging with them.
So I have talked about service providers and customers, which are fundamental.
But there is more to strong relationships than this. I have talked about looking
through the customer lens, and we need to recognise that what customers want from
water and wastewater service the customer experience is the result of a very
complex set of interactions across a whole system.
Everyone in this room is part of that system. Companies, customers,
government, NGOs, regulators. We need strong relationships between all of us if
that system is to work well, and that system needs to work well if trust and
confidence is to be maintained and grown.
I really want to hear from you about what you think good looks like here in terms of
the relationship between service providers and customers but also more broadly
across the system. What you think the benefits are from really effective, strong
relationships. What you think the barriers are to that, and what you think are the
risks. Which leads me on to the vision for Ofwat what part do we see ourselves as
laying in this system and how can we play our part in helping deliver that trust and
confidence?
The vision for Ofwat
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Outcomes that matter to customers
The whole sector
Others will need to play their part
Using the full tool kit
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Developing Ofwats new strategy 4 J une 2014
A vision for the future speech by Cathryn Ross, Chief Executive

The vision for Ofwat, with more pointy bits
Lets start from first principles. What is an economic regulator for?
Customers are absolutely central to our role. If water and wastewater services didnt
matter enormously to customers we wouldnt exist. And if customers could make
their own choices, if they had power in relation to service providers for example,
because they could choose another provider or stop consuming we wouldnt be
here either. Thats something we must never forget.
As an economic regulator, we are here to align the interests of capital, and
companies, with the interests of customers.
You will have noticed that I have referred to the interests of capital, and the interests
of companies. I know there is an overlap between the two, but I think it would be
dangerous to elide them. Im interested to hear what you think on this point.
So, given the vision of trust and confidence, and given what I have said about what I
think that means what does that mean for how we do our job?
Three points on this...
Point one. We need to focus on the outcomes that matter to customers. We
have started this through PR14, but we need to build on it. In particular, we need to
look through the customer lens, to understand the different services that they receive
and want. Throughout the value chain. I think there is a lot of work to do here
especially in the wholesale part of the value chain. And we need to have an open
mind about how those services are provided, where when and by whom. We need to
welcome and encourage innovation; we need to be open to experiments.
Point two. We need to look at the whole sector. We need to understand the
relationships between all those who are involved in the sector. And we need to
do what we can to facilitate, drive, and encourage strong relationships that benefit
the system as whole.
That means we need to pay attention to our own relationships with others which is
something I am conscious we might not have done enough of in the past, but where I
hope you would agree we have made great strides recently.
Developing Ofwats new strategy 4 J une 2014
A vision for the future speech by Cathryn Ross, Chief Executive

It also means we need to support the relationships that others have. In particular,
this means not re-inserting ourselves in the relationship between service providers
and customers, but doing what we can to encourage really strong, effective
relationships here well-informed engagement, responsiveness, genuine dialogue.
Of course, we will need assurance that those strong, effective relationships are
there. And we recognise that this is going to require others to step up. And if those
strong, effective relationships arent there if others dont step up we may need to
step in. Otherwise we wouldnt be doing our job. Indeed Id go further and suggest
that our credibility and authority in helping to maintain and build those relationships
comes in part because of our ability to step in and intervene when necessary. But I
do recognise a potential tension here, and I would really like your thoughts on this.
Point three. We need to be ready, willing and able to use all the tools in our tool
kit. Taking decisions on where, when and how to intervene on the basis of a really
good understanding of what is being delivered in terms of those outcomes that
matter to customers, and the strength and effectiveness of the relationships across
the sector. And let me be clear I think we need to be much better on informed on
these questions.
We have a powerful set of traditional regulatory tools price controls, licence
enforcement. But we need to think about what drives service providers to behave in
the way that we do. And we need to think about how we influence that, which will
always be in large part about those traditional tools. But it will also be about the
wider tool kit shining a light on issues, bringing the right people around the table to
have the right conversation at the right time which might avoid a more draconian
intervention later in the way that we have recently on the Board leadership,
transparency and governance issue.
We also need to understand better the influence of others involved with the sector.
And we need to work with them, collaboratively, and in partnership. We need to use
our tool kit in a way that complements the tools that others have, which of course
has implications for everyone in this room do you agree we need to work
differently?
And what are the implications for you?
A role for everyone
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Over to you
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Developing Ofwats new strategy 4 J une 2014
A vision for the future speech by Cathryn Ross, Chief Executive

Over to you
So, thats where we have got to. I think many of you will recognise the different
threads in what I have said from conversations we have had in recent months. But I
stress that this is a work in progress. And you will see from what I have said that the
two defining characteristics of our emerging strategy are:
i. a focus on what customers need, want and can afford, ie, outcomes; and
ii. a recognition of the fact that those outcomes result from a complex set of
relationships, which means we cant take our thinking further none of us will
deliver that trust and confidence in water and wastewater services without
your help.
With that in mind, I will hand over to Sharon Darcy, who many of you will know from
Sustainability First. But she is here in her private capacity, to help challenge us and
provoke discussion today.