Ofwat tightens cost of capital to 2.96% in Final Determination package

Ofwat this morning unveiled a PR19 final determination package featuring a lower cost of capital than at the draft determination stage, teamed with an expanded investment programme, and some moderation of the performance expectations it had targeted.

The regulator settled on an allowed return on capital at 2.96% for the whole business, and 2.92% for wholesale controls, compared to the 3.19% and 3.08% for wholesale used in July. It had signalled in summer a further fall was likely at this point.

At £51bn, the overall investment package allowed was £2bn higher than at the draft determination stage and included £13bn on resilience spending.

While some performance targets remained unchanged from July, Ofwat moderated some. This including trimming the average leakage cut earmarked from 17% to 16%, and a more radical change on the supply interruption reduction target (64% to 41%).

Average bills will fall by 12% (c£50 a year), level with the July number.