Price review: Ofwat unveils programme of huge investment, service improvements and lower bills for water customers
Ofwat yesterday set out a major package of investment to signal a new era for what the water sector delivers for customers and the environment.
Proposals unveiled yesterday involve water companies investing an additional £6 million each and every day over the next five years – over and above investment to maintain existing assets – to improve the environment and services for customers, at the same time as cutting bills by £50.
The announcement is laid out in Ofwat’s price review draft determinations for 14 of the 17 water companies in England and Wales. Three water companies, Severn Trent, South West Water and United Utilities, have already been fast-tracked through this stage of the price review in recognition of their high-quality plans for the next five years.
In what is the most far-reaching price review the regulator has ever undertaken, there are ambitious new targets to drive water companies to do even more for customers and the environment. These include:
- cutting pollution incidents by more than a third,
- reducing supply interruptions by almost two-thirds,
- helping 1.5 million customers who are struggling to pay, and;
- cutting leakage to save enough water equivalent to the needs of the population of Manchester, Leeds, Leicester and Cardiff.
Extreme weather events, climate change and population growth mean that water companies need to make sure they are doing everything they can now, so that they continue to provide safe and reliable water and wastewater services whatever the future brings.
Ofwat’s draft determinations provide more money for new and improved services with an additional £12 billion to be invested over and above business-as-usual costs and investments.
This extra funding is to improve services for future generations, including by building reservoirs, moving water to where it is needed most, and protecting the environment. The additional expenditure is the equivalent of £6 million every day for the next five years.
Falling financing costs and Ofwat’s insistence on more efficient business–as-usual from companies, mean that alongside better services and rising investment Ofwat expects water bills to fall by an average £50 before inflation.
Ofwat Chief Executive, Rachel Fletcher, yesterday said:
“The package we are unveiling today signals a brighter future for customers, with better services, a healthier natural environment and lower bills.
“To get there we are calling for extra investment of £6 million each and every day to improve the environment and provide services for a growing population. At the same time we expect to see customers’ bills cut by an average of £50.
“These are seriously stretching goals for the sector, but we know they can be achieved. We have seen three water companies leading the way and we now want the rest to show the ambition and drive to deliver this new era for customers and the environment.”
Water companies now have a further opportunity to provide new evidence if they consider Ofwat’s draft determinations will prevent them from delivering for customers and the environment. Ofwat will consider carefully the responses it receives from all stakeholders before making final determinations in December.
Notes to editors
- Ofwat’s PR19 draft determinations for slow track and significant scrutiny companies, and early draft determinations for fast track companies can be found here.
- Our updated view of the cost of capital for the appointee is 5.25% in nominal terms, equivalent to 3.19% (CPIH) and 2.19% (RPI) at the appointee level and 3.08% (CPIH) and 2.08% (RPI) at the wholesale level.
- Bill reductions for combined water and sewerage services range from £7 for Hafren Dyfrdwy to £110 for Northumbrian Water, in 2017-18 prices.
- 11 December 2019: Ofwat will publish final determinations for all companies on 11 December 2019. Water companies then have until 11 February 2020 to decide whether to accept their final determination or request an appeal to the Competition and Markets Authority.
- 1 April 2020: Ofwat’s determinations affect customers’ bills.
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