We have spent the last few weeks reviewing and discussing with Ofwat their Draft Determination feedback on our proposed business plan for 2025-2030. Our plan proposed ambitious investments to deliver more jobs, tackle pollutions and build much needed infrastructure, while continuing to ensure our services remain affordable, resilient, and accessible for all our customers. Anglian Water’s Regulation Director, Darren Rice, outlines the changes we need Ofwat to make to ensure our Final Determination is investable and deliverable.  

PR24 is by all measures the most important Price Review that the industry has ever gone through. We need to deliver more investment and more infrastructure than ever, whilst also delivering wholesale performance improvement.  
The Price Review defines our region’s ability to grow. Water infrastructure is foundational and enables the expansion of housing, schools and energy infrastructure that is so badly needed. 

To achieve the scale of work needed, our Final Determination, and indeed the sector, needs to be investable. The Draft Determination does not secure the right balance between risk and return. It is vital for Ofwat to re-think this point, and support the industry in attracting long-term, quality investment to drive economic growth. 

For Anglian’s Final Determination to be viable, we are asking Ofwat to make the following five changes;  

Increase the focus on the long-term 

£250 million of our proposed resilience and climate change adaptation enhancement projects have been rejected or moved to base, replaced by one-off £30 million funding to tackle climate change impacts. While hundreds of millions of pounds of unfunded investments have been loaded into already over-stretched base costs. Essential work will inevitably now be pushed into future AMPs, resulting in short-term performance risks, and requiring future billpayers to foot the bill for consequences of work not being done now. 

We need Ofwat to reinstate investments targeting asset health and replacement of climate vulnerable mains, and to provide appropriate funding to upgrade assets other than water mains. Ofwat has also incorrectly applied the energy adjustment, resulting in a £175m shortfall in base costs. 

Set a cost of capital that fully reflects real-world market data and the risks companies face

The water industry is about to start building infrastructure on a scale not seen since Joseph Bazalgette in the 19th century. For Anglian, this includes building two new reservoirs. We need Ofwat to ensure that we can attract the right kind of investment to deliver our plans. 

As it stands the allowed return proposed in the Draft Determination will not enable us or the wider sector to attract the necessary debt and equity capital to fund AMP8 investment programmes. 

Reassess the proposed AMP8 performance improvements and proportionate incentives

Ofwat’s AMP8 Draft Determination assumes that the sector will meet the Performance Commitment Levels set at PR19. However, the most recent performance data (2023/24) and future forecasts (2024/25) demonstrate that AMP7 performance targets are beyond what many companies expect to achieve. 

We ask Ofwat to use the emerging data on AMP7 performance to recalibrate AMP8 performance commitments and incentives and deliver a balanced package of service performance improvement.  

Develop a regulatory model for reservoir development that better aligns with precedents set by other major infrastructure.  
Changes are needed to Ofwat’s overall approach to major infrastructure delivery. We believe the Thames Tideway Tunnel (TTT) model provides a better dynamic approach for infrastructure than five-year price reviews. Ofwat’s current approach exposes us to uncontrollable risks, via proposed Totex sharing rates and the rejection of our proposed cost reopener. Neither decision is consistent with key precedents such as TTT. We need a more tailored approach that is appropriate for the investment scale and risk profiles of large-scale infrastructure. 

Redress the overall balance of risk and return

Many overlapping factors including base, WaCC, PCDs, uncertainty mechanisms, the performance framework and approach to large-scale infrastructure determine the overall balance of risk and return in the Draft Determination. 

We ask Ofwat to redress the material concerns we’ve set out above in relation to base costs, the cost of capital, regulatory treatment of large infrastructure and the performance framework. In addition, we need Ofwat to take a more flexible approach in relation to PCDs to support delivery and enable us to recover certain costs during the 5-year AMP to ensure financial resilience. 

For a reminder of what we initially proposed to Ofwat, visit here.