Early discussions between the regulator and the water companies indicate the provision of £363 million of transition funding – split £118 million for water services and £245 million to wastewater services – has resulted in a smoother investment profile when compared to the transition between previous price control periods.
The actual transition spend by the water companies is still to be reported to Ofwat but the regulator will be inviting them to discuss their expenditure and how this has delivered benefits and efficiency savings.
An Ofwat spokesperson told Utility Week that discussions are being held to establish “a logical point” to fully review the spending and “this looks most likely to be next year”.
Including a transitional funding arrangement for the start of the PR19 period will be one of a number of issues discussed by the regulator as it starts its preparations for the next price review.
The 2014-15 transitional funding mechanism was introduced for PR14 to give the water companies “the facility to plan more effectively, make better use of resources and the supply chain and ease the transition between price control periods”.
This was in response to one of twelve key recommendations identified in a Treasury report on smoothing investment cycles in the water sector, published in July 2012.
The mechanism allows capital investment which will deliver outcomes in the 2015-20 period to be brought forward to 2014-15. This work is then funded by customers through the PR14 price controls.