Ofwat allows 96% of in-scope re-opener claims – but holds down in-period bill rises

(by Karma Loveday)

Ofwat has allowed the vast majority of extra spending requested by water companies under the new Cost Change Process, which enables in-period funding for requirements that were uncertain or unknown when the PR24 determinations were issued.

Thirteen companies submitted requests totalling £4.3bn. £752m was assessed to be out of scope or insufficiently evidenced. Of the remaining £3.53bn, £3.39bn (96%) has been approved under draft decisions issued last week. £1.2bn will safeguard services and assets; £477m will support growth, housebuilding and data centre plans; and £34m is for PFAS management of drinking water. Projects include: 

• Water infrastructure investment by United Utilities to supply data centres in East Manchester.

• Anglian Water investment to unlock growth pressures more quickly and deliver additional capacity at Flag Fen in Peterborough. 

• Additional wastewater treatment capacity, including by South West Water at Newquay Wastewater Works to support tourism, and by Severn Trent and United Utilities to enable more housebuilding. 

• Wessex Water bringing forward PFAS work planned for 2030-35 at one of its water treatment sites.

  
  

Company allocations range from £1m or less (Welsh Water, Hafren Dyfrdwy) to almost £1bn (United Utilities). All allowances have Price Control Deliverables attached, making them subject to clawback, and some provisions are conditional on specified information being presented.

The vast majority of costs will be recovered from customers after 2030, but five firms have been allowed to increase bills within the current period. Ofwat said this had been determined on a case-by-case basis, considering factors including how companies are progressing against their existing investment programmes. Southern Water customers will see the most substantive price impact this side of 2030, for schemes including the Isle of Wight Water Recycling Plant in Sandown and the Hastings Resilience Scheme.

Ofwat said the £143m that was rejected related to gaps in elements of company cost estimates and the options analysis that supported the requests.

A consultation is running until 24 September, and final determinations will be issued in December. 

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Comment:

(by Verity Mitchell)

Most companies requested in-period price increases, despite likely strong challenge from Ofwat given cost of living challenges for customers. Ofwat appears to have rewarded companies already making progress against their existing investment programmes. Only five were allowed in-period price rises, and only for a very small proportion of their allowed expenditure. Out of the total expenditure allowed for England and Wales of £3,390m, bills are increasing by only £53m in 2027/2028 and £55m in 2029/30 – 1.5-1.6% respectively.

98.5% will be reflected in bills after the next price review, meaning that companies will look to capital providers to fund the investment in the current five-year period. If the additional investment is not delivered in AMP8, customers won’t experience additional bill increases; these would be clawed back as underspent regulatory allowances.

The most material increase is for United Utilities, which raised £800m of new equity in May 2026 predicated on £1,113m of requests. It has been granted £995m but no interim price rises. Southern Water is next largest at £749m, which Ofwat said is for schemes that were not fully included in its initial PR24 allowances because of lack of cost certainty.

Companies will have other opportunities to apply for re-openers in subsequent years. The annual reports of the companies are already revealing the challenge of deploying existing AMP8 capex in a timely manner. The risk is that this extra investment – some of which is directly linked to new homes and economic growth – will not materialise in the challenging timescale.

Meanwhile, prime minister Andy Burnham has stated in public interviews that he is “angry” about the proposed cost change increases, given that customers had been “asked to pay more for years”. He accused water companies of treating customers like a “blank cheque”. He said: “Where water companies seek to pass unnecessary costs onto households, they will be challenged.”

This has ratcheted up the political pressure on Ofwat’s consultation process and may have increased public expectation of more intervention in established regulatory process by the new government.

Ofwat stated that the companies’ requests were “rigorously reviewed” and judged to be the “right option; offer value for money; and that customers were not funding work previously funded”.