Ofwat: Brace for change in PR24 determinations

Ofwat’s rulings on water company PR24 business plans are likely to significantly change between the draft and final determination stages as political decisions are taken later in the year.

Speaking at the Utility Week Forum, Ofwat senior director of the price review Chris Walters said there would inevitably be a “shift” in its decision making to reflect several environmental policy and legal decisions which are expected to be set out later this year.

With draft determinations due by June, Walters said water companies should expect their business plan proposals to change more than in previous price reviews when final determinations are published in December.

“It has been a measure of quiet pride that draft determinations are pretty much final determinations to get it right the first time,” Walters said.

“But it is clear that legal requirements – particularly around environmental commitments – that governments in England and Wales have not said everything they need to say about that right now.”

Government updating or amending its expectations over the coming months would mean legal or policy changes would need to be reflected in business plans, Walter added.

“Something in that period between draft and final determination will have to shift, that is somewhere we will show that flexibility,” he said.

Water companies submitted their business plans in October last year. Once final determinations are published, water companies have the option to challenge Ofwat’s ruling.

Following the PR19 final determinations, four companies sought a redetermination from the Competition and Markets Authority.

Walters rejected the notion of wanting to avoid more appeals this year. “I’m sanguine about the appeals process, I see the value of it,” Walter’s said, but added his take may be countercultural within the organisation.

In 2020, it was a lengthy process, which the companies came away from with increased allowances, despite the CMA accepting the bulk of Ofwat’s methodologies on key areas.

Walters likened the high profile concerns that dogged the UK’s health service with the current issues in the water sector – comparing hospitals’ finances to levels of indebtedness, waiting lists with storm overflows and GP appointments to leakage.

“There’s a feeling that the system’s stewards don’t have a grip on a small number of consistently poor performers; there are concerns about fat cat hospital bosses, and concerns about dividends and excessive executive pay.

“This all came together in the NHS for a once in a generation shift in the structure of the service and the regulator’s oversight of it. We’re not at that point but not miles away from it. A reset moment to have a step change is what’s needed.”