A Glide Path for Water Investment: Lessons From England and Wales

OFWAT (The Water Services Regulation Authority) is the economic regulator of the water and sewerage sectors. Every 5 years OFWAT renegotiates price limits with the water companies on the basis of a series of initiatives that must be addressed in the next 5 year Asset Management Period (AMP). The guidance on these initiatives is produced by the Department for Environment, Food and Rural Affairs (DEFRA), which, by its nature oversees the entirety of the water industry. 

Prior to each AMP, DEFRA sets out new requirements for the water companies, setting expectations and areas of increased level of service required. This gives DEFRA the ability to guide the progress of the industry in a structured and staged manner, focusing on new areas as needed at each AMP. This means that each AMP can address the most pertinent issues in the industry at that time, thus bringing about staged and steady improvements to the water services and environment. The latest AMP (AMP6) focuses on improved efficiency and reducing energy demands to bring about lower operational costs. 

Setting aside the issue of privatisation, could the approach taken by DEFRA to guide the investment decisions of the UK private water industry have application to the public water industry in New Zealand? 

This paper looks at what lessons can be taken from the UK’s governance approach to improvements in the water industry and whether a similar approach of setting a “glide path” for priority investment decisions for the New Zealand public water industry may have merit.