Liz Parminter, a water sector expert at PA Consulting, discusses the ways in which Ofwat’s final determinations can impact water companies in England and Wales over the next five years.
The article poses some questions on whether the announcement is a game changer for the industry and what it means for both the water companies and customers.
Liz says: "Beyond the headline grabbing reduction in appointee cost of capital to 1.96 per cent – the lowest since privatisation – the picture for water companies is more nuanced and individually focussed than it has ever been".
She adds: "Ofwat has made concessions in its final determinations giving water companies more breathing space in next couple of years through a reduced frontier shift efficiency challenge, more glidepaths and reduced stretch on some performance commitments and changes to Pay As You Go ratios and bill profiles."
"Despite these positives, some water companies still face large cost gaps whilst others have to find steep gains in performance. The challenges don’t stop there with other companies having already agreed to reduce dividends or facing a challenge to maintain their credit ratings. In such an environment it will be the strength of each company’s executive team that will be differentiating factor. How well they embrace new operating models, increased use of technology and ideas from outside the sector will ultimately decide the winners and losers over the next five years," Liz concludes.