Ofwat has set out updates to water companies’ licences to enable them to make use of alternative financing approaches to get major infrastructure schemes built.
This would apply to all companies that opt to use direct procurement for customers (DPC) to fund significant projects.
Between 2025-30, six companies indicated in business plans that they plan to procure major projects through DPC. Ofwat’s amendments will apply to Severn Trent, South East, South West, Thames, Wessex and Yorkshire with the potential to expand to other projects that are likely to go down the financing route.
In 2019 Ofwat pushed companies to explore using DPC if it offered the best value for billpayers. The DPC model was recommended by the regulator as a way for major, high-value projects to be delivered outside of five-yearly price controls.
This, Ofwat said would deliver greater value by increasing competition outside of the price controls. Water companies tender for the design, construction, financing, operation and maintenance of major infrastructure.
United Utilities was the first to adopt the DPC model for the aqueduct resilience work at its Haweswater reservoir.
In its PR24 final methodology, Ofwat stated that DPC should be the default model for projects with a whole life totex over £200 million. It said there was a significant increase for PR24 to the number of projects proposed to be delivered by DPC.
The new conditions will specify the DPC process companies should follow. This includes getting Ofwat’s agreement to undertake the DPC and how revenues will be charged to customers through the allowed revenue direction, which Ofwat must issue.
Secondly, changes will allow water companies to recover charges from billpayers outside of the price control to cover certain aspects of planning, design build, financing, maintenance and operation of assets.
Ofwat said customers’ interests will be safeguarded with a rigorous procurement process with gated decisions to ensure that value for money is achieved throughout.
The modifications are subject to consultation that runs to March.
DPC was promoted in the House of Lords’ landmark report on water regulation The Affluent and the Effluent last year as the most appropriate vehicle to deliver large infrastructure at best value.