PR19 – what’s in it for the environment?

Guest blog from David Black at Ofwat – the water sector regulator. 

Improved environmental health has been one of the great successes of the water sector in the past few decades. Since 1989, the work of water companies has led to a 137% increase in the share of UK bathing waters achieving “excellent” status, and wildlife such as otters and lamprey have returned to waters previously too polluted for anything to live in. In addition, since its high in 1994, the amount of water lost through leakage has been reduced by around a third. All of this has helped the UK shed its label as the ‘Dirty Man of Europe’.

Fast forward to the present, and environmental protection and resilience remain high on the public agenda, with decarbonisation, air quality, and pollution of our oceans all grabbing headlines in recent months. The water sector is not immune to environmental challenges, with issues caused by population growth and climate change requiring attention. It’s with these challenges in mind that we put together our 2019 price review (PR19).

Challenging companies

At PR19 our ambition for the environment is high. We will help ensure companies can deliver their statutory obligations and the environmental improvements that customers want and are willing to pay for. To make this happen, we are:

  • challenging companies to reduce leakage by 15% per annum;
  • asking companies to set ambitious targets for per capita consumption (PCC) reductions;
  • challenging companies to set stretching performance commitments on pollution incidents, sewer collapses and wastewater treatment. Companies will face financial penalties if they are not achieving stretching levels of performance;
  • requiring companies to have a performance commitment on reducing abstraction from environmentally sensitive sites;
  • ensuring companies consider the environment as an explicit part of their wider resilience.

Our PCC measure is particularly important, as it requires reductions in the amount of water households and businesses consume. To deliver this, water companies must engage with their customers on the best way to reduce their water use, putting communications at the heart of their operation and promoting a powerful tool in pursuit of environmental improvement – behaviour change.

But PR19 also puts a responsibility on companies to consider the environment in contexts that customers won’t see. A resilient environment is at the heart of a resilient water sector, and our resilience principles explicitly consider eco-system resilience. When planning for how they will deal with unexpected events, water companies will need to consider wider costs and benefits to society and the environment, including the sustainable use of natural capital.

Looking to the long term

The water sector needs to think long term, which is why we are asking water companies to provide assurance that their plans address long-term issues, and set indicative performance commitment levels for at least the next 15 years. This approach helps us to ensure that companies are on a genuinely sustainable path, rather than just responding to short-term incentives or issues. A number of emerging environmental issues – including nano-particles and antibiotics – are set to challenge the sector in the coming years, so it is right that companies expand their planning horizons.

PR19 also harnesses the power of markets in the interests of the environment. In January water companies will publish water resource market information, allowing third parties easy access to information about how they are planning to meet demand over the next 25 years. We are expecting and encouraging third parties to bid to provide services where they spot an opportunity for additional efficiencies. For example, a third party could offer innovative demand side solutions to enable a company to reduce abstraction of water from environmentally sensitive rivers and streams. We are also promoting the development of bioresource markets helping turn sludge waste into valuable energy and fertiliser.

When developing their business plans, we expect companies to actively engage customers and stakeholders to understand their requirements for environmental outcomes and investment. Our methodology indicates where we consider companies’ ambition should be on many issues. But beyond statutory and licence obligations, it is for customers to decide what level of environmental ambition they want and are willing to pay for. Our PR19 framework will ensure that companies will be held to account for delivering more of what matters to customers.

David Black
Senior Director, Water 2020, Ofwat

Read the full PR19 methodology.