Ofwat sets ‘very problematic’ revised PR24 schedule

Ofwat may not make its final rulings on water companies’ £100 billion business plans until the end of January 2025, just two months before the next asset management period begins.

Senior water company figures told Utility Week that the revised timetable is “very problematic” and “borderline ridiculous”.

The water regulator has today (14 June) revealed its revised timeline for the PR24 process. After being forced to move the publication of the draft determinations from 12 June to 11 July because of the general election, Ofwat has also shunted the timeline for the rest of the process.

Final determinations are now earmarked for 19 December, however Ofwat has also set a “backstop” date which gives the regulator until 31 January 2025 to publish its final rulings.

Ofwat said it recognised the importance of not delaying that date, unless necessary, given the scale of investment proposed for the PR24 period and the associated benefits to customers and the environment.

However, in a short statement, the regulator added: “We recognise that the timetable is tight and so we are exploring all available avenues for extending the backstop date that would allow Ofwat to issue PR24 final determinations no later than 31 January 2025, if required.

“This would involve a modification of existing licences: we are exploring the option of issuing a consultation on a licence modification, in parallel with that on our draft determinations.”

If final determinations are not published until the end of January 2025, then it would limit the window for companies to request a redetermination of their business plans.

At PR19 companies were given two months to accept or reject Ofwat’s final determinations. If they were given the same amount of time to respond this time around, then the deadline would be set during the second half of March – just weeks before the next asset management period begins.

The regulator also announced that the consultation period following the draft determinations will run to 28 August. This leaves companies with seven weeks to respond, which is slightly shorter than previous price controls.

Utility Week understands some companies have pushed for this to be a nine-week period while others resigned themselves to expect the shorter timescale.

Senior water company sources told Utility Week that the reduced consultation period added an “immense pressure” and may result in low quality and rushed responses from companies.

“Seven weeks to respond to something of this scale, and with enormous implications is borderline ridiculous,” one said.

Another added: “We submitted these plans in October, so Ofwat has had nine months to respond, but we will only have seven weeks to reply? With all due respect to Ofwat, that seems out of whack and is deeply concerning.”

One source pointed out that Ofwat’s revised timeline appears to have been set so that the regulator has more time to complete its final determinations, at the expense of giving companies more time on the consultation.

Industry figures also raised concerns given the level of ambition in plans, which require a step up in investment to meet statutory requirements and projects being undertaken at a far greater scale than previous AMPs.

“We’re concerned because of what is at stake here: we’re all looking at really challenging plans with significant delivery challenges let alone mitigate the impact of the plans on customer bills,” one source said.

The majority of enhancement spend is on statutory requirements, much relating to discharges from storm overflows and removing phosphorous at treatment sites.

“If Ofwat does come back (in July) with tough changes, then, what gives? We cannot not deliver these things,” another source said.

In previous price controls, companies have been given foresight ahead of the draft determinations of what to expect, but the regulator has changed its tact this time around.

Another potential hindrance is what a new government will do with the inherited draft determinations.

One source told Utility Week they could choose to issue a new strategic policy statement to Ofwat, which was last issued by government in 2021.

However, this would trigger huge changes at a time-sensitive moment for delivering on the huge capital delivery programmes. Should a new government opt to make changes to the policy statement, which then caused delays to improvements actually being made against water pollution, it would cause greater problems for the new government.

“Given the size of the capital delivery programmes being proposed, any delays in the first year and procurement processes caused by changing (the SPS) could cause huge problems down the line,” a source said.

Another area of concern with the compressed timetable, one commentator raised, will be the impact on tariff setting for April 2025.

This process ordinarily begins in November and is time consuming to gain board approval and assurances before being published.

With draft determinations appearing in December or potentially January, this cuts into the time companies have to set bills changes.

Sources voiced concerns that during times of high inflation, it will take more work to ensure customers are not negatively impacted and would be “very challenging” to condense the process.