Ofwat starts to scrutinise PR19 business plans

Ofwat has wasted no time in getting underway with scrutinising water companies’ business plans for the next price review period, PR19.

As part of the 2019 price review all water companies across England and Wales submitted their business plans to the regulator last week (3 September).

In the documents companies have outlined how they will meet the needs of their customers from 2020 to 2025.

Ofwat’s PR19 sets the price, service and incentive package water companies must deliver during the five-year period.

Companies have explained what they propose to charge customers in the years ahead. The business plans also show how they will ensure the long-term resilience of their infrastructure and operations and what additional help they will provide to the most vulnerable customers.

Ofwat said business plans proposals outlined by the 17 water and wastewater companies include:

• Bill changes between 2020 and 2025 ranging from an increase of 3.5 per cent to a decrease of 14 per cent;
• A reduction in daily household water use per person to as low as 119 litres, compared to a current sector-wide average of 141 litres; and,
• A commitment from 16 companies to meet Ofwat’s 15 per cent leakage reduction challenge, with two companies promising to cut leakage by more than 20 per cent.

The regulator is due to publish its initial assessment of each company’s plan on 31 January 2019, when it will categorise companies’ plans according to the level of quality, ambition and innovation they have demonstrated.

The best plans could benefit from incentives through the price review process, while those that fall short will face closer scrutiny and interventions and could receive lower returns.

David Black, Ofwat senior director, said: “Now that water companies’ business plans have been submitted, we’ve entered the next critical phase of our price review process. Over the coming months, we’ll be scrutinising 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 years 2020-2025 and beyond.

“As we test each company’s plan, we’ll be looking for evidence of ambition and innovation and crucially, we’ll want to see customers and the environment put to the fore as never before.”

In developing their business plans, Ofwat expected water companies to “actively, meaningfully and effectively” engage with customers and stakeholders.

Ofwat will make final decisions on the services water companies must deliver and limits on the prices they can charge customers in December 2019.

Water UK’s manifesto, which was published on the same day companies submitted their plans, revealed the water industry plans to spend more than £50 billion between 2020 and 2025.

The investment represents a 13 per cent increase on the current five-year period.

For business plans for PR19 companies sought the views of more than five million customers, Water UK said.