Ofwat has today announced a Final Determination figure of £104 billion for the water companies’ AMP8 Business Plans – a £16 billion increase in allowances compared to its Draft Determination of £88 billion announced on 19th July.
Ofwat has today announced a Final Determination figure of £104 billion for the water companies’ AMP8 Business Plans – a £16 billion increase in allowances compared to its Draft Determination of £88 billion announced on 19th July.
The water companies had proposed around £112 billion of expenditure for the 2024 Price Review ( PR24) in their representations following the Draft Determinations - a £7 billion increase on the £105 billion they had proposed in their initial AMP8 Business Plans.
Ofwat’s Final Determination of £104 billion is a significant rise in expenditure compared to previous price controls and a 71% increase in expenditure compared to PR19.
The regulator explained that as part of the Price Review process it challenged companies' proposed expenditure where there was insufficient evidence that:
- expenditure is efficient;
- enhancement expenditure does not overlap with base expenditure;
- expenditure has not been previously funded;
- expenditure is required.
Ofwat says its overall expenditure challenge to company representations is 7% which is slightly greater than the 5% challenge at PR19 final determinations.
According to the regulator, the challenge reflects the greater proportion of enhancement expenditure at PR24 compared to PR19 where some companies have proposed significantly higher costs than others to deliver comparable improvements.
Ofwat said the increase in allowances compared to the Draft Determination reflects a £7 billion increase in company requests – which reflects:
- additional requirements from Defra, the Environment Agency, Natural Resources Wales and the Drinking Water Inspectorate;
- additional evidence from companies;
- improvements to its own cost assessment approach.
Asked in this morning’s press briefing whether Ofwat was really completely unaware of the fact that the Environment Agency and Drinking Water Inspectorate were planning to bring in new regulatory requirements at the point when the Draft Determinations were published in July, Senior Director for the Price Review Chris Walters said:
“We flagged that at the time – that we knew the process for agreeing more changes for whats called the Water Industry NationalEnvironment Plan – WINEP – which is the programme of work that covers storm overflows were going to be needed.
“And we knew, thanks to close collaboration with the Drinking Water Inspectorate and the EA that more work was underway wIth the DWI and the companies on dealing with “forever chemicals.” We flagged that at the time. So we knew increases in expenditure – sorry investment – were goingt to be needed between July and now.”
Ofwat CEO David Black added:
“Just to add, the key thing was we didn’t know what the quantum was – so we knew this was coming, we didn’t know the amount so it couldn’t be included in the Draft Determinations and as Chris said, we did flag at the time that there was more to come.”
This does appear however to be somewhat at variance to Ofwat’s City briefing for the Draft Determinations delivered on 19th July.
In response to to the following question from an investment analyst:
“Do you see any upcoming legislation that that could significantly change what you have in today’s Draft Determinations?”
Ofwat CEO David Black replied:
“Not aware of any upcoming legislation except for what you have today. I think there is still some outstanding questions about the industrial emissions directive, and the impacts on costs. There is I think some question perhaps around PFAS implications and drinking water quality. So there are live issues, but, but nothing that we see I think would be hugely significant.”
Further on in the presentation Ofwat Chair Iain Coucher reiterated this view, saying:
“We think that the draft determinations here will remain and we need companies to deliver on that. But, if we were issued with something, then we'd have to accommodate it. But we aren’t expecting anything. Certainly not between now and the final determinations in December.”
Sign In
