Wessex: PR24 signals more centralised decision-making

Ofwat’s PR24 final methodology weakens the regulator’s commitment to outcomes based regulation, one water company’s director of regulation has warned following the publication of the blueprint for 2025-30 last week.

Wessex Water’s Matt Greenfield told Utility Week the approach is more prescriptive at a time when the sector needs to be stepping up for customers, communities and the environment.

“This feels like a move to more regulation and more centralised decision-making,” Greenfield said. “It seems to weaken the commitment to outcomes-based regulation, which is a shame because we really believe that proper outcomes-based regulation is the way to deliver more benefits for customers, communities and the environment more efficiently.”

Wessex set out its ideas to reform regulation and worked with Ofwat ahead of the publication of the methodology to make a case for outcomes-based regulation at PR24 and in the Water Industry National Environment Programme (WINEP).

“In this time of not only a cost of living crisis, but climate and nature emergencies that is more important than ever,” Greenfield said. “That opportunity is limited.”

Ofwat released its final methodology last week setting out expectations for companies to improve environmental stewardship to be more resilient to the ravages of climate change.

The outline streamlined performance commitments, with fewer “meaningful” financial outcome delivery incentives attached rather than more bespoke commitments. These will cover key common areas such as river and bathing water quality, biodiversity and operational emissions.

Ofwat signalled the next investment period would herald a move towards companies focussing their expenditure on nature-based solutions, something the sector was keen to see.

Commentators had expressed concerns that traditional engineering solutions and pouring concrete had fewer barriers to inclusion in business plans despite being less environmentally beneficial and often costlier.

The regulator sought to address this by levelling the playing field by introducing a ten-year ongoing operating expenditure allowance that could be recovered over two price control periods for non-traditional solutions, such as catchment management solutions that are wholly or primarily on-going operating expenditure.

Ofwat said this should “close the potential funding gap” for non-traditional options without “overly increasing the complexity of our regulatory framework”.

While this was welcomed by Wessex in theory, Greenfield said the offer does not go far enough: “The proposed solution remains a long way from actually levelling the playing field.”