Water regulator Ofwat has published the final methodology for its 2019 price review (PR19), promising lower bills, improved services, reduced leakage and more help for vulnerable water customers in England and Wales from 2020 to 2025 and beyond.
The regulator has challenged water companies to deliver more of what matters to customers in the coming decade, by being ever more resilient, efficient and innovative in the services they provide.
As part of the methodology, Ofwat has also published an initial view of the cost of capital – based on market evidence – of 2.4% (in RPI terms), which would be a record low for a regulated utility. Ofwat estimates that this reduced cost of capital could result in an average saving per customer of £15-£25 a year from 2020 onwards.
Ofwat is challenging water companies to go the extra mile in terms of the services they provide to their customers in the years ahead. Help for vulnerable customers will, for the first time, be an explicit part of a price review and water companies will be required to devise and deliver plans to identify and help customers in vulnerable circumstances; Ofwat will report publicly on these plans.
War on waste
Ofwat is also challenging water companies to improve the resilience of their services. Companies need to plan long term and develop smart solutions to address the pressures of a growing population and climate change. This starts with addressing leakage. Companies are being asked to stretch themselves further than ever before to save 170 billion litres of water a year; enough to meet the yearly needs of 3.1 million people.
Water companies must submit a business plan to Ofwat by September 2018 outlining in detail how they will deliver on these challenges.
Presenting the plan, outgoing Ofwat Chief Executive, Cathryn Ross said: “Today, we unveil our blueprint for how we will push water companies to deliver more for customers through to 2025. The next decade will see profound changes in customers’ expectations and we are pushing the water sector to be at the very forefront of that.
“I’ve no doubt that the sector can step up and meet the challenges we’ve laid before them today,” said Ross.
“We’ve said many times already that this will be a tough price review for companies,” Ross continued. “We will cut the financing costs they can recover from customers and, with this lower guaranteed return, they will need to more efficient and innovative than ever before.”
The methodology includes 13 appendices with another on network plus water and wastewater controls to follow shortly in addition to the responses to Ofwat’s draft methodology.
To see the executive summary, click here.