Ofwat asks for a step change in performance and investment as water companies submit plans for the next price review period

On Monday 2 October, Water Companies submitted to Ofwat their plans for the next price review period from 2025-2030.

The plans will be subject to scrutiny and challenge by Ofwat before final decisions are made in December 2024. Ofwat has told companies that they must be ambitious in their plans to reduce pollution, while delivering value for money for bill payers.

Ofwat wants to see companies transform their performance for consumers and the environment. To drive this change Ofwat will be putting in place an incentive regime which rewards companies for effective delivery, but hits companies that fail to step-up to the challenge with financial penalties.

The publication of companies’ business plans comes at a pivotal moment in the water sector’s development. Ofwat has made clear there is a pressing need to reduce pollution from storm overflows, improve river and bathing water quality and strengthen capacity in water resources, so England and Wales are better placed to meet the challenges of climate change and population growth, while continuing to deliver reliable supplies of world-class drinking water.

Ofwat wants companies to also embrace innovation, for example making greater use of digitalisation and using nature-based solutions to help reduce storm overflows.

As families struggle with higher household bills it is important that the much-needed improvements in performance and investment offer customers value for money. It is also vital that customers only pay for new investment and not to put right past failings.

Given that companies are expected to propose an increase in water bills, Ofwat wants companies to build on the progress the industry has already made in supporting customers who are struggling to pay.

Ofwat’s regulatory framework has enabled £200bn of investment since privatisation.. Ofwat will provide a reasonable balance of risk and return, so that companies can attract the funding required to deliver the investment programme and to link returns to performance for customers and the environment. Ofwat will also require companies to take account of their performance for customers and the environment, as well as investment needs and financial resilience, when deciding whether to pay dividends.

Ofwat will be seeking the views of customers and stakeholders on company business plans. This will include through a series of public meetings, ‘Your water, your say’, at which customers and stakeholders will be able to give feedback to each company on their plans and ask questions.

Commentating on Ofwat’s expectations for business plans Ofwat’s CEO David Black said:

“The water industry needs to deliver a step change in investment and performance to clean up our rivers and seas, while also helping to ensure that we can meet the challenge of climate change.

“Company business plans are an important first step in the price review process.. Ofwat’s role is to forensically scrutinise their proposals, to ensure any increase in bills is justified, efficient and delivers significant improvements in river and bathing water quality. We will assess how companies are helping customers to afford any bill increase.

“As we work through the business plans we will continue to monitor companies’ performance, hold them to account for delivering improvements and push them to build meaningful plans to change”.

Mike Keil, Chief Executive of the Consumer Council for Water (CCW), said:

“Customers want to see investment in improving their services and enhancing the environment but any proposed substantial bill rises will add to the worries of many struggling households. Investment on this scale must come hand-in-hand with fairer and more consistent support for the nearly one in four households who say they are already struggling to pay their water bill. We also want to see evidence in these plans that more water companies are putting their hand in their own pocket to fund a step change in financial support for struggling customers.”

“The water industry is at a crossroads with trust in water companies lower than it has been for more than a decade but this is an opportunity to put things right and set us on a more positive path. Customers need to see and feel the difference through the services they receive.”