CEPA sets out PR24 risk allocation options

CEPA has created two "strawman" options for Ofwat to consider as it develops its approach to risk allocation at PR24. In a report commissioned by Ofwat, the consultant scoped out an incremental change option and a more fundamental change option.

It explained: “The incremental change option highlights that the current regulatory regime has evolved over multiple price controls, with clear rationale around the introduction of individual policy measures and a regulatory framework that is well understood by stakeholders. We do not consider that there are errors in Ofwat’s approach that necessitate extreme change; instead there are lessons learnt from recent price controls, new challenges and taking a step back that can inform policy setting for PR24.

“The more fundamental change option looks to scale back some of the mechanisms and policy options in order to try to direct the focus of company management to those factors that will best deliver a mix of short-term and long- term societal benefits. This approach would likely involve a degree of ‘rough justice’, but the regulatory framework is likely to be less complex and more targeted as a result.”

The table sets out more detail.

CEPA said the options in each straw man do not need to be adopted together, and stressed they should be treated as illustrative to aid PR24 thinking rather than as recommendations.