Enhancement spend could triple at PR24, Ofwat chair tells inquiry

Ofwat’s new chair, Iain Coucher, told the House of Lords Industry and Regulators Committee that PR19’s £10bn enhancement spend could reach “two or three times that spend level” at PR24. He emphasised this was a rough estimate at this stage and that more clarity would come when companies submit their draft business plans next October.

He was giving evidence alongside chief executive David Black last week as the committee continued its inquiry into the work of Ofwat.

Black gave a strong performance, robustly rejecting the suggestion that Ofwat had favoured low bills over increased investment. Referring to PR19, he said: “We did not reject a single scheme on the grounds of affordability…Bills have fallen in recent price reviews. That has been due to the fall in the allowed returns, with lower returns for shareholders. We think that is absolutely right, but it was not at the expense of investment.”

Peers challenged the regulators for being too “passive” in not having an independent vision for investment levels beyond company proposals and legislative requirements. Black said Ofwat had in recent years taken a proactive role in setting challenging performance targets, for instance on leakage, and on assembling RAPID to progress water supply infrastructure. But he accepted it had been less proactive in the environmental space, “partly because it has been a working arrangement with the Environment Agency” which has deployed a bottom up approach.

He pointed to “significant opportunities to improve the co-ordination of the planning process in future, particularly around environmental investment” and said Ofwat was considering the RAPID model for this process.

Coucher indicated a shift in position on investment vision, commenting that a conversation on what world-class water distribution should look like would be valuable and that Ofwat “should at least be laying out our views about what could be done”.