David Black: Delivering PR24 commitments will be tough

Delivering on commitments made within PR24 plans will be tough for water companies, Ofwat’s chief executive David Black has said.

He said deliverability of plans will be tougher than ever for AMP8 in light of the need for vastly increased investment spending, so plans should focus on how they can be delivered rather than “taking it for granted” as at previous reviews.

Speaking at a British Water event on how the supply chain can support the sector at a time of transformation, Black said: “It is vital that companies anticipate the challenge, work closely in partnership with supply chain and innovate to meet the challenge.”

He advocated for early engagement with companies to collaborate on delivering innovations to improve how companies deliver ambitions set out in business plans including sharing best practice on novel construction methods.

“It is clear that PR24 will be a major step-up investment and so activity for the supply chain will likely increase. The shape of the activity is also becoming clearer.”

Ofwat anticipates a step up in major projects such as large reservoirs, major transfers and water recycling schemes; an increase in demand for smart technologies and networks for a large scale metering rollout as well as heightened interest in monitoring of wastewater assets.

Ofwat has also urged water companies to communicate more with billpayers before writing business plans to demonstrate how they plan to spend money and the value the investment offers customers and communities.

With five months to go until companies submit the first draft of their business plans for the next price review, Black stressed the need to “seize the moment” by focusing plans on what matters most to the communities they serve.

“Too often price reviews get focused on debates about the cost of capital and cost modelling,” he said.

“Companies need to demonstrate that they understand public concerns and they have an ambitious and credible plan to improve environmental performance and resilience – both now and in the long term.”

The public, political and media focus on the sector is going nowhere, Black said, so in the face of changing expectations these utilities must anticipate what customers expect of service, resilience and towards the environment.

“The sector needs to demonstrate that expenditure is value for money. Customers may be prepared to pay more for their water, but they need to know that each pound from their own pockets is well spent.”

Business plans should be an opportunity to engage with stakeholders and billpayers including how money will be spent. He said there was typically too little communication from companies about how spending benefits communities, improves quality of life and can be a vehicle for growth.

Earlier this week, Affinity Water – the first company to set out its PR24 plans – outlined its intention to spend 77% more on its asset management programme during the next five-year spending period (AMP8).