UKWIR, the UK and Ireland’s water industry research body, commissioned Frontier Economics to explore its regulatory-focussed ‘Big Question’: “How do we ensure that the regulatory framework incentivises efficient delivery of the right outcomes for customers and the environment?”

Our work on this has now been completed and our findings were  reported in the February edition of The Water Report.

The objective of this project was to identify the priorities of UKWIR’s members for increasing the effectiveness of economic regulation in the water industry, and based on this, to define future work on specific aspects of economic regulation.

There were several challenges in approaching this wide-ranging ‘Big Question’, for example, the regulatory approaches differ across the jurisdictions; individual components of these regulatory approaches can be complex; and there are various ways in which the individual components overlap and interact within each overall regulatory approach.

Building on virtual interviews with water companies, we ran a series of workshops to discuss six priority topics drawn out from these interviews and explored existing issues and potential options for future work.

The six priority topics discussed were:

• The role of the customer.
• Long-term incentives. (including explicit mechanisms and more implicit incentives)
• Optimal investment in achieving environmental outcomes.
• Government role and light-touch regulation.
• Integration of cost assessment and service quality.
• Balancing risk and reward.

Possible options for future work

Any future work that is commissioned by UKWIR needs to deliver best value for its members. Therefore the short list of options for future work from the six priority areas we identified needed to take account of UKWIR members’ priorities, work that has been carried out in the past and is ongoing, and also where there is scope to influence the shape of future regulatory policy.

At a discussion forum held on 18 January 2021, UKWIR and Frontier Economics gathered views and priorities from key stakeholders (such as economic regulators, environmental regulators, Government departments, and consumer bodies) to ensure the proposed way forward reflects their views as well.

Based on all of this, we identified three key areas for future work:

• long-term incentives and investments;
• customer and stakeholder engagement; and
• regulatory risk and reward measures.

UKWIR and its members will now look to commission future work in these three areas. This work will provide detailed assessments of options for improvement, which will inform decision making for the next set of price controls in UKWIR members’ jurisdictions.

We are very grateful to all the water companies and stakeholders who took part in the interviews and workshops, and recognise the significant time commitment they invested in the project.