Industry hits back at Ofwat criticism of enhancement allowance underspend

Water companies responded to comments from Ofwat last week that it was disappointed by industry under spending of enhancement allowances in the first two years of this price period by arguing they will spend all of their allocated investment by 2025, and by highlighting that Ofwat’s comments presented only a “partial and selective picture”.

The regulator last week published data showing that at a sector level, companies spent only 68% of their forecast enhancement cost allowance in 2020-22. It said 15 out of 17 firms had underspent, with three spending less than half: Yorkshire Water 25%, South West Water 46% and Affinity Water 47%.

Breaking this down further, Ofwat said 14 companies underspent their budget on improving their water network and eight companies underspent their budget for improving their wastewater network.

Chief executive, David Black, commented: "We expect companies to deliver the service improvements they were funded to deliver. No ifs, no buts. The lack of investment from companies we're seeing at the moment is extremely disappointing, especially in light of the poor performance for customers and the environment. Failure to invest or delays to investments means that vital improvements are not being made or are late. I am expecting these companies to get a grip on their investment programme and make up for the shortfalls to deliver the associated improvements in service.”

A Water UK spokesperson said: “Today’s data represents a short snapshot that only covers two of the five years in the current regulatory period - the first of which was severely disrupted by Covid lockdowns; as with other industries, this caused companies to re-profile some of their construction programmes. In addition, the data covers only about a fifth of the areas companies are investing in, leading to a partial and selective picture of their full activity.

“What matters is that the industry delivers all of the environmental outcomes it has committed to by 2025 – and companies know that they will be held fully to account for that by their independent regulators.”

These sentiments were echoed by individual companies mentioned specifically in Ofwat’s release. For instance, an Affinity Water spokesperson said: “We are half-way through of our five-year investment cycle to 2025, where we have spent just under half of the planned five-year investment. Rest assured, we will spend all of the planned investment for the remaining years of this five year cycle.”

Yorkshire Water said: “The latest performance report covers just two years of the current five-year period, where we have devoted time to designing better environmental catchment solutions than the traditional engineered solutions that will improve the environment while providing the best value for our customers. In the coming years, these solutions will be implemented and our investment will be achieved by the end of 2025, as agreed with Ofwat in order that we meet our regulatory obligations.”