Industry asks CMA to rethink de-prioritising asset health from its redeterminations

Water UK has pushed back on the Competition and Markets Authority’s (CMA) decision to exclude asset health reassessment from its PR24 redeterminations.

The CMA de-prioritised asset health, on the grounds that Ofwat is pursing alternative work in this area to develop a roadmap to a new approach under PR24. Water UK argued Ofwat has had “ample time” to address the issues since PR19 and has not done so, and that the roadmap work offers no guarantee of change before PR29. It challenged: “In the context of a full redetermination, it is difficult to see how the CMA can discharge its legal function without examining the relevant asset health issues. Indeed, even just looking at the specific investment cases it has highlighted in the approach document would still require the CMA to give a view on the existence, or otherwise, of a capital maintenance problem in the sector.”

Elsewhere, Water UK raised concerns about the investability and stretch elements of the final determinations, and welcomed the CMA’s choice to independently assess the cost of capital and enhancement allowances, and to scrutinise the overall risk/return balance.

Among the points made by Ofwat in its submission on prioritisation and approach were that it would be a significant task to update all parameters with 2024-25 data, given the mid-December deadline, and that there is a case to also de-prioritise base cost models, notional capital structure and total pollutions performance commitment levels and incentives (in light of incoming reporting changes on this metric).