Ofwat offers comfort on its ex-post adjustment plan for Covid impacts

Ofwat has reaffirmed its position that it will consider regulatory adjustments for Covid 19 ex post, when it performs its normal PR19 reconciliation process (after AMP7 year one performance has been reported).

In a letter to water company chief executives, Ofwat chief, Rachel Fletcher, said: “It is still too early for a rounded and balanced assessment across all of the issues, not least because there is still a lot of uncertainty about what will unfold over the coming months.” She reported most company leaders endorsed this approach, though some had “raised concerns that the regime might not work in customers’ favour without some early adjustments”. But: “We have yet to be persuaded that there is a need to act immediately.”

She offered the reassurance that Ofwat and Water UK were undertaking joint work to build evidence and inform the assessment, and said both parties shared ambitions to: progress capital programme investment quickly; pursue PR19 Performance Commitments with determination; and prioritise customer interests, particularly those in vulnerable circumstances.

Fletcher further reassured: “When we consider whether or not to make any ex-post adjustments, we will be evidence-based, considering all relevant circumstances in-the-round. And we will be careful not to undermine the ambitions listed above.

"We will consider and take account of how different companies have responded to challenges in order to make our assessment. And, while we will be careful to ensure that we do not reward poor management or poor governance, or companies that seek to put aside key ambitions of PR19, please be reassured that we will not assume the benefit of hindsight when considering a company’s performance during the crisis. Please continue to keep appropriate evidence surrounding decisions taken and outcomes.”

Elsewhere in the letter, Fletcher praised companies and their staff for their response to the crisis; noted there are opportunities as well as challenges in the current situation; and said Ofwat had been “encouraged that some companies currently expect to outperform despite the challenges”.