The announcement follows Ofwat’s decision to prequalify two companies, Affinity Water and South West Water, which is not rated, for a fast-tracked price determination as part of its PR14 process.
If Affinity Water accepts Ofwat’s return guidance, including a lower return on capital, it will receive an early draft determination, allowing management to refocus on running its business and implementing its investment plan for the next regulatory period.
This will give the Baa1 stable company a “clear credit positive” according to Moody’s analyst Stefanie Voelz.
The company will also earn an initial financial reward, amounting to around 0.4 per cent of its average regulatory capital value over the next regulatory period, as well as enhanced incentives for future outperformance.
All other UK water companies will have to re-submit their plans together with further evidence that their plans are in customers’ best interest.
The companies will remain subject to additional regulatory scrutiny, and will not receive the financial reward or the higher incentive payments that the fast-tracked companies will receive.
However, they could achieve an early draft determination in June 2014 rather than August 2014.
Veolz said: “We will be able to assess the ultimate impact of the regulatory review at the earliest at draft determination stage, when there is further clarity on Ofwat’s baseline total expenditure levels, and companies’ business plan proposals in comparison with these.”