Water firms respond to Ofwat’s demands for more PR19 revisions

Ofwat has written to Anglian, SES, Thames, and Yorkshire to air substantial concerns about their proposed costs for base expenditure for 2020-25.

The regulator will publish its draft determinations for the 14 water companies who have resubmitted plans for the next five years on 18 July.

However, it has taken the step of issuing early notice to the four firms, saying Anglian, Thames and Yorkshire in particular “have asked us to allow them significantly more money than they currently spend on base or on-going expenditure for wholesale water and/or wastewater services”. SES Water is seeking increased costs for providing retail services.

Ofwat said that following detailed scrutiny of the companies’ revised proposals, it had found that there was a significant gap between its view of efficient costs for retail and wholesale costs, and these four companies’ proposals. They will now be expected to review their costs before submitting further information at the end of August.

The details of the cases were:

• In Anglian’s case, Ofwat identified a £251 million gap in the base costs for water, equivalent to 16% of the full costs, while the difference in wastewater is £406 million (also 16%)
• At SES there is a £10.7 million gap (28.5%) for retail services
• For Thames the difference in projected costs on water is £455 million (11.4%) and for retail it is £123.4 million (14.1%)
• Yorkshire’s plan was £315 million more than Ofwat’s view for wastewater

Ofwat senior director, David Black said: “We said we would scrutinise each and every plan in detail to ensure they are robust enough to deliver a high quality, affordable and resilient service to customers in the next five years and beyond. We are disappointed that revised proposals from Anglian Water, SES Water, Thames Water, and Yorkshire Water have not yet risen to the challenge we have set them.

“For this reason, we have taken the step of writing to these four companies now to allow them additional time to reconsider and ensure they are in the best interests of customers.”

An Anglian Water spokesperson said: “As the company serving the driest and one of the fastest growing parts of the country, we’re confident our plan is the right one to ensure a sustainable future for our region.

“Our plan was developed and supported by conversations with many thousands of customers.

“We have already provided further evidence to Ofwat to support our proposals, which Ofwat acknowledges in today’s letter that it has yet to consider fully. We will continue to share our evidence with Ofwat through the formal price review process over the coming months.”

Paul Kerr, finance & regulation director at SES Water said: “It is helpful to have early sight of Ofwat’s likely assessment of our retail costs in the draft determination. While the gap between our proposed expenditure and Ofwat’s view of what is considered efficient is £2 million smaller than the initial assessment in January, clearly there is still a challenge that we need to respond to. Over the coming weeks we will continue to consider the feedback carefully, alongside the rest of the draft determination when we receive it, and are committed to ensuring we deliver the best outcomes for our customers in the most cost-effective way.”

Nevil Muncaster, director of asset management at Yorkshire Water, said: “Yorkshire Water has developed a robust business plan which has been costed to fund our largest ever environmental improvement programme which the company is legally obliged to deliver. We have historically been assessed by Ofwat as one of the most efficient companies in the sector and believe that our PR19 submission delivered ambition at an affordable price in line with Ofwat’s aspirations. We are undertaking analysis on the figures which Ofwat have provided to us and will remain in dialogue with them over the coming weeks.”

Thames Water declined to comment. Speaking to Utility Week last week, Thames Water’s chief financial officer stressed that any further cuts to the PR19 budget would impact the speed at which Thames could roll out resilience projects.