Water industry regulator Ofwat has finalised its price review for 2020-25 by confirming a major investment programme which allows the water companies in England and Wales a combined £51 billion spending package for the next five years.
Water industry regulator Ofwat has finalised its price review for 2020-25 by confirming a major investment programme which allows the water companies in England and Wales a combined £51 billion spending package for the next five years.
Customers will also see an average 12%, or about £50, reduction in bills, before inflation. According to the regulator, this can be achieved as a result of its £6 billion efficiency challenge and lower financing costs, with the lowest allowed return on capital since privatisation of the water sector 30 years ago Based on analysis of market data and evidence up to the end of September 2019, Ofwat is reducing the amount the water companies can collect from customers to fund the cost of financing their business.
Around a quarter of the £51 billion PR19 settlement, around £13 billion, will be investment dedicated to providing resilient services and a better environment in the face of a growing population and climate change. The additional investment - equivalent to £6 million every day for five years - will, among other things, see a new reservoir built in Hampshire and the construction of a pipeline connecting water supplies from North Lincolnshire to Essex.
The settlement also includes £4.8 billion to deliver the National Environment Programme (NEP) for Wales and Water Industry National Environment Programme (WINEP) for England. The programmes are intended to help tackle some of the biggest challenges facing the water environment, from the spread of invasive species to the effects of chemical and nutrient pollution.
The regulator said it intends to keep encouraging companies to use efficiently delivered nature-based green solutions, which provide wider environmental benefits, instead of capital-based “grey” solutions. According to Ofwat, catchment management is becoming more of a mainstream activity, with 1,200 schemes by 2025 – but this is “still only scratching the surface of what we think is possible”, the overview says.
New levels of service
Ofwat has set new levels of service to enable the water companies transform their performance over the next five years. These include:
- Cutting leakage by 16% - saving enough water to meet the needs of everyone in Birmingham, Bristol, Cardiff, Leeds, Liverpool and Sheffield
- Identifying and helping an additional two million customers who need extra support
- Investing over £1 billion to protect communities at risk of flooding
- Reducing pollution into rivers and streams by almost a third
- Preparing for drier weather by providing £450 million to explore new water resources such as reservoirs or moving water from where there is lots to places with less.
Protecting infrastructure
The settlement allows for a range of initiatives to enable the water companies to provide new infrastructure for increased resilience - almost £500 million to support 17 major resilience schemes, including developing new water resources and the transfer of water across the country.
£643 million has also been allowed to increase the resilience of water and wastewater infrastructure against potential failures, including:
- increasing the reliability of critical aqueducts and water treatment works
- reducing customers’ reliance on a single source of water supply
- improving resilience where water mains cross roads and railways
- protecting against power failures at water and sewage treatment works
- protecting water and sewage treatment works from extreme flooding
Ofwat has also recognised that Londoners deserve a better level of service and said it is stepping in to protect customers by allowing Thames Water to bid for up to an additional £480 million to deliver improved service resilience. To access this, they will need to pass a series of tests and Thames’ investors will also need to provide substantial additional funding.
Ofwat - "we have set water companies stretching but achievable performance commitments"
Ofwat Chief Executive, Rachel Fletcher, said:
“Today we’re firing the starting gun on the transformation of the water industry backed by a major investment programme to deliver new, improved services for customers and the environment and resilience for generations to come. Now water companies need to crack on, turn this into a reality and transform their performance for everyone.
“They will be investing the equivalent of an extra £6 million each and every day to overhaul services, strengthen their infrastructure and improve our natural environment. And at the same time, customers’ bills will fall by an average of £50 before inflation.
“We have also set water companies stretching but achievable performance commitments to meet, with associated financial incentives.”
If any company does not want to accept the final determination, it can ask the regulator to refer the whole determination to the Competition and Markets Authority (CMA) for review. The companies now have two months to decide whether to do this.
Sunday Times - "water giants set to launch wave of appeals"
A report in yesterday’s Sunday Times newspaper under the headline “water giants had dodged Labour threat ..now Ofwat wades in” said that “water giants are set to launch a wave of appeals” against Ofwat after it imposes one of the toughest financial settlements in years.
“Yorkshire, Anglian, Northumbrian, Thames and Soputhern are expected to be among the hardest-hid companies”, the newspaper says.
Commenting on the Final Determination, Tony Smith, Chief Executive of the Consumer Council for Water, said:
“Most customers will see this as a good deal but more must be done to make sure everyone can afford their bill and ensure there is sufficient investment in safeguarding these essential services long into the future.”
“Water companies have had it too good for too long. At first glance it appears Ofwat has listened to our repeated calls for it to get tougher and tip the balance back in favour of customers. But we’ll be keeping a close eye on the performance of companies to make sure customers are not short-changed.”
Commenting on Ofwat’s announcement, Christine McGourty, Chief Executive of Water UK, the organisation which represents all the UK water companies, said:
“Today’s announcement is a highly important one as the industry looks to deliver for customers and for the environment, today and in the future.
Companies will now take time to work through all the details as they consider the implications of this tough price review for the years ahead.”
Click here to download Ofwat's Overview of companies' Final Determinations
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