Ofwat believes £2.2billion of savings can be squeezed out of the water industry if companies sell and trade water more efficiently.

The regulator yesterday rang in the changes to the way it regulates the water and sewerage sectors, particularly the ways firms in England and Wales can charge their customers from 2015 to 2020.

It estimates around £1billion can be saved by looking more closely at companies’ retail services – such as billing and customer call centres – to drive better customer service and lower costs and another £1billion from encouraging “more efficient” water trading.

Water trading involves moving water between companies and regions, from places where it is plentiful to where it is scarce. Ofwat says “little progress” has been made in the last two decades with only 4-5% of water traded in the UK.

Regina Finn, Ofwat’s chief executive said: “We want companies to move away from ticking regulatory boxes and to concentrate instead on the importance of delivering for customers now and in the future including the environment.”

The regulator is setting four price controls for each water and sewerage company. That’s one each for retail water and sewerage services to household and business customers, one for wholesale water services and one for wholesale sewerage services. Ofwat will only set two price controls for ‘water only’ companies.

Water firms have until 2 December 2013 to prepare a business plan for 2015-20 which takes into account the changes.

Ms Finn added: “It’s now time to deliver. Companies need to listen to their customers and come up with plans that show how they will meet the challenges facing the sector, such as affordability and long-term sustainability.”