Water companies that do not provide “ambitious and innovative” business plans will find PR19 “a very tough review”, Ofwat chief executive, Cathryn Ross, has said.
Writing exclusively for Utility Week, Ross went on to say the regulator has “thrown down the gauntlet” for water companies with its recently published price review methodology. Moving forward, there will be consequences for firms that fail to meet the standard.
Conversely, those that show they are stretching themselves to meet challenges facing the industry will be rewarded, both financially and in terms of reputation and procedure, promised Ross.
Ofwat has demanded that water companies “stretch themselves” to deliver outstanding performance on customer service, resilience, affordability and innovation.
“We view each as fundamental to maintaining trust and confidence in water and waste water services among customers and wider society,” wrote Ross. She added that she expects “ambitious and innovative business plans” for the next AMP “that deliver more of what matters” to customers.
Although Ross acknowledged that privatisation has delivered “considerable imporvements” in service for water customers, she maintained the the sector has “lagged behind other sectors”.
“We see no reason why this should continue to be the case,” she warned.
Ross concluded with a caution to companies that the upcoming review “will be a challenging”.
“In order to ensure that the water sector is well placed to meet the demographic, societal and environmental challenges that lie before us, we’ve set the bar high” she said. “We’ve made clear the kind of outcomes we are looking for and the direction we expect to see companies moving in, particularly with regard to theircustomers.”
Ofwat revealed its draft framework for PR19 last week. Industry reaction largely centred around proposals to “significantly” reduce the weighted average cost of capital (Wacc) for the review.
Richard Khaldi, water sector expert at PA Consulting Group and formerly a senior director at Ofwat, said the regulator’s plans show the days of “easy money” in the water sector are over.
“PR19 will be a tough review for companies with a significantly lower cost of capital and a focus on operational outperformance,” he said.
Ofwat will publish an indicative figure for the PR19 Wacc in December this year.