Three tests for affordability at PR19

Ofwat will measure up water company business plans for affordability in three ways at PR19, according to John Russell, senior director of strategy and planning.

In a speech last week ahead of Ofwat’s publication of its draft methodology for the next price review on 11 July, Russell (pictured) said the regulator was developing tests to scrutinise whether company plans deliver:

• ​Affordable bills for all – the regulator has its sights set on the potential for a lower cost of capital and efficiencies from totex and outcomes.

• Affordable bills over the long term – in an explicit reference to looking beyond 2025, Russell said: “…we want to see companies demonstrating that their bills provide value for money beyond the end of the next price control period. Customers, Customer Challenge Groups and we will want to see companies being fair to future generations, and not moving costs unduly into subsequent price control periods.”

• Support for those struggling to pay – Russell noted that all companies now offer social tariffs, but indicated Ofwat would look for more. He said: “Companies need to consider how they are addressing affordability for those who are struggling to pay their bill more widely. We will be reviewing companies’ approaches at PR19. We are considering the use of metrics to measure progress in relation to both affordability and vulnerability and will also be consulting on incentives to encourage companies to improve their approaches to reducing bad debt in July.

Russell’s speech also covered the themes of resilience, customer service and innovation.