The Wacc was set at 3.85 per cent in the regulator’s guidance at the start of the year, but Ofwat has cut it by 11 basis points due to the cost of debt being “substantially lower” than when it published guidance on the Wacc in January.
The regulator warned that Bristol Water will need to seek further efficiencies, as its final determination is £132 million lower for the wholesale business than that set out in the company’s revised business plan.
Ofwat’s chief regulation officer, Sonia Brown, told Utility Week: “The company will need to seek out a wide range of further efficiencies including reviewing the scope of its investment programmes or it is likely its shareholders will be exposed to additional cost.”
Two other companies that Ofwat flagged as having a major gap between their business plans and its calculations, United Utilities and Thames Water, have made significant progress on narrowing that gap.
Ofwat increased United Utilities’ allowance for wastewater by £300 million which, together with downward revisions by the company itself, leaves a gap of £179 million of efficiency savings it will need to find to meet Ofwat’s final determination.
Brown said that Thames Water was now below the regulator’s threshold “across the piece”.
Thames Water has also been granted special conditions for its work on the Thames Tideway Tunnel to deal with the “unique risk” of the project, allowing the water company to return to the regulator in “special circumstances” should the cost of the central estimates of cost “become unobtainable”.
The final determinations will see water bills cut by an average 5 per cent before inflation across the piece by 2020 – from £396 to £376 – and will result in the companies investing more than £44 billion over the five year period from 2015.
Brown added: “I think that we’re in a really great place for the industry to move forward and really build trust and confidence with their customers and really go forward on the basis of these solid foundations.
“PR14 is delivering more for less.”