Ofwat has warned that it will be “less forgiving” of low-quality business plans during PR19 than it was at PR14. Chair Jonson Cox said he expects the standard of submissions that received “enhanced” status at PR14 to be the new regular standard of submission at PR19.
“Clearly, we will have to think very carefully for the rest of this year about companies that don’t meet that standard,” Cox told delegates at Water UK’s City Conference. “From my perspective, Ofwat went above and beyond to help a number of companies who didn’t quite make it with their returns, and gave them more chances to get it right last time.”
As part of PR14, Ofwat awarded South West Water and Affinity Water enhanced status, which meant the two companies were effectively fast-tracked through the price review.
Cox said he was conscious that the regulator’s use of the enhanced status system “drew some criticism”, and that a number of companies felt they should have been deemed enhanced but were not.
“What was interesting to me was that in many of those cases, there was one single factor that you could identify in the plan which undermined it,” said Cox.
“I was floating the idea of introducing one ‘super’ category,” he added. “We haven’t decided on any of this, but if one management team said ‘we are really going to change the way this sector looks, feels and is experienced by its customers’, maybe we should put a material incentive on that.”
However, he said that was “just an idea”, and warned: “What I can signal is that we will be less forgiving next time around, of plans that could quite simply be better but didn’t quite have the effort to get there.”
This is not the first time the regulator has warned companies they should expect a tougher PR19. Last October, Ofwat chief executive Cathryn Ross said the regulator will not hand-hold water companies through the price review period, and will be “raising the bar” on the quality of their business plans.
Ofwat has also told Utility Week that it is considering new methodologies for incentivising innovation in the next AMP. It wants to find ways to promote “frontier-shifting” behaviours in the sector.