Price Review 2019: Ofwat to test water company business plans
Ofwat has begun to scrutinise water companies’ business plans for the next price review period (2020-2025), with the regulator due to publish its initial determination for each company’s plan in January of next year.
As part of the 2019 price review – which sets the price, service and incentive package that the water companies must deliver between 2020 and 2025 – each water company across England and Wales has set out a business plan detailing what it intends to deliver and what it proposes to charge customers in the years ahead. Companies’ plans also outline 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.
Business plan proposals outlined by the 17 water and wastewater companies include:
- Bill changes between 2020 and 2025 ranging from an increase of 3.5% to a decrease of 14%;
- 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% leakage reduction challenge, with 2 companies promising to cut leakage by more than 20%.
When it publishes its initial assessment of each company’s plan on 31 January 2019, Ofwat 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.
Ofwat will make final decisions on the services water companies must deliver and limits on the prices they can charge customers in December 2019.
Ofwat Senior Director, David Black 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.”
Notes to editor:
- In developing their business plans, Ofwat expected companies to actively, meaningfully and effectively engage with customers and stakeholders to gain an in-depth understanding of customers’ requirements for environmental outcomes and investment.
- Ofwat will publish an initial assessment of each water company’s business plan on 31 January 2019. Ofwat will categorise companies depending on the level of quality, ambition and innovation they have demonstrated in their plan. The categories will be: exceptional, fast-track, slow-track and significant scrutiny.
- Both exceptional and fast-track business plans will benefit from procedural and financial incentives, through an early determination with early certainty on specified components of costs and outcomes.
- Business plans categorised as significant scrutiny will receive reduced cost sharing rates and potentially capped outcome delivery incentive outperformance payments.
- In March/April 2019, Ofwat will publish draft determinations for companies with exceptional & fast track plans
- By April 2019, companies categorised as either significant scrutiny or slow track must submit revisions to their business plans addressing the shortcomings Ofwat has identified
- In July 2019 Ofwat will publish draft determinations for companies categorised as either slow track or significant scrutiny
- In December 2019 Ofwat will publish final determinations for all companies.
- For further information on Ofwat’s 2019 price review CLICK HERE
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