Wessex chair warns of ‘perverse consequences’ of PR24 framework

Wessex Water’s chairman has warned of the “perverse consequences” of the approach Ofwat has taken for its PR24 framework, which he believes could jeopardise net-zero ambitions.

In the company’s annual report, Francis Yeoh, head of Wessex’s owner YTL, said the price review should be outcome rather than output-based to allow the sector to invest in nature-based solutions at catchment scale.

The company has previously mooted the need for outcome-based environmental regulation that could enable society to pay less for environmental improvements. It has called for regulators to set targets at catchment scale and let companies deliver in a way that give the most benefits at the lowest cost.

Yeoh said achieving this would need the next price review to create “a level playing field for all deliver options” and incentivise low-carbon nature-based solutions wherever possible.

Although Yeoh recognised the support for such an approach, he said the current proposals for the next price review rely on “narrowly defined output targets”, which he said are not cost effective and risk creating “perverse consequences” for outcomes, such as carbon emissions.

“There is no need to continue down the traditional path,” Yeoh stressed, adding that shifting direction would not require legislative change, “just a willingness to be brave and do things differently, at a whole system level”.

He insisted that a strong monitoring framework would provide the necessary trust and assurance, but that change needed to be actioned urgently to see benefits before 2030.

In a period of widespread criticism of the sector and its investors by politicians, media and the public, the chair underlined that Wessex’s owners are “long-term investors with strong moral, ethical and Christian values”.

He said YTL have been good owners and met regulatory expectations so was “concerned to see the reputation of the industry being so challenged”.

Chief executive Colin Skellett added that the business welcomed the “spotlight now being thrown on river water quality” and said the company would rise to the challenge of meeting society’s expectations.

It is investing £3 million each month to improve river water quality and said separating surface water was the first choice in its plans to eliminate the risk of harm from overflows. Skellett asked for government support to end the automatic right for developers to connect to sewer networks, and the power to disconnect surface water where possible.

During 2021/22 Wessex supported more than 54,000 households with bill support and is working to extend the benefits to another 32,000 customers.

The company reported its best ever drinking water quality compliance score for the year and topped the customer experience league table. Skellett added Wessex was “well on track” to cut leakage by 15% by the end of the AMP after reducing by 2 million litres daily.

Reported profit before tax fell from £75.2 million to £54 million year on year due to increased labour, energy and chemical costs. However, Skellett said financial performance remained “resilient and in line with expectations”.