Companies should be able to deliver significant price cuts – or finance further resilience investment – at PR19, according to Ofwat chairman Jonson Cox.
Sharing a personal opinion at Water UK’s City Conference last Thursday, Cox (pictured) said a number of factors – “a step change in efficiency, segregation of the value chain, opening up of markets, innovation and record low financing costs” – point to the creation of “significant headroom” in the 2020-25 period. Elaborating on last point, he (perhaps provocatively) referred to Moody’s reference to a wholesale weighted average cost of capital and the Tideway WACC, both around 2.5%.
Cox said the headroom could provide for “a material reduction in prices to customers” or “further investment in infrastructure required to deliver an ever more resilient sector…We recognise that there may be considerable expenditure for ‘hard’ infrastructure for new water transfer schemes, for flooding resilience, for service continuity.”
He also said he has high expectations of business plans next time around and that the standard deemed enhanced at PR14 would be “the new normal” at PR19. He floated the idea of an exceptional material incentive for a single company – “one super category”– if a management team succeeded in fundamentally changing the way the sector is experienced.