Investors’ faith in Ofwat’s independence slides

Faith in Ofwat’s independence has fallen over the past year among water sector investors, with fewer than half (48%) feeling the regulator is autonomous from government, compared to 55% in 2021.

Ofwat’s annual performance survey for investors and stakeholders found that 25% either strongly disagree or simply disagree with the statement that it is independent of government(s). The figure last year was 18%.

Despite most (79%) agreeing that the regulator engages with the investor and credit rating community, only 53% reported feeling listened to – although this was an increase on 41% the prior year. The 15% that strongly disagreed with this stance was the highest proportion of objection in the survey.

At the halfway point of the asset management period (AMP8), as companies are preparing to write and submit business plans for PR24, the survey showed a decline in the proportion of respondents who believe Ofwat is proportionate, consistent and transparent – falling from 68% last year to 58% in 2022.

Many agreed (66%) that the regulatory framework aligned the interests of companies and investors with consumers over the long term. This has risen year-on-year, from 56% agreeing the framework aligns with combined interests.

Investors highlighted that the regulator could do more to engage the community around discussions of how longer-term priorities will be met, and what that means for regulation. Respondents felt the pressing nature of environmental requirements required a different approach to current used.

Ofwat said it was “keen to ensure there is a clearer focus on the long-term needs of customers and the environment and better decision making on how those needs are met.”

For the next price review, Ofwat underlined that business plans should be adaptive to identify what companies must achieve within the five-year period and what decisions “should be scheduled in future periods when there will be greater certainty”.

The concerns of international investors regarding the level of regulatory intervention in the water industry compared to other UK sectors were raised last year as part of a House of Lords inquiry.

The Industry and Regulators Committee heard from the Global Investors Association (GIA) that appetite of investors remains sufficient to fund infrastructure needs despite concerns of Ofwat intervention.