Ofwat plans bioresources regulation changes

Ofwat is consulting until 22 July on a series of regulatory actions to galvanise the bioresources market. This follows an October 2020 review which found barriers including regulatory barriers to the market reaching its potential.

Ofwat said it planned to establish bidding market arrangements similar to the PR19 Bid Assessment Frameworks set up by companies for activities related to water to ensure clear, objective and non-discriminatory consideration of third-party bids when tendering for significant work.

The regulator said it would also undertake better targeted cost assessment to drive efficiency. It said it had already issued guidance to companies to improve cost allocation in relation to sludge liquors and would consult separately on changes to the allocation of overheads and on methods to improve the allocation of energy costs and revenues.

Ofwat proposed that it would challenge base costs on average revenue requirement rather than expenditure. It said this approach would come closer to the gate price approach common in the waste sector and introduce comparative competition on a wider set of costs than just base costs.

Challenging on average revenue, according to Ofwat, would address company bias to in-house solutions that might attract regulatory capital value, rather other more innovative approaches, because in-house investment and long-term contracts would be included within the same assessment. The regulator said it would consider how best to reduce the risk of asset stranding if it would be in customers’ interests, taking account of the different degree of regulatory protection it committed to in PR19 for pre-2020 RCV and investment after that date.

• In other proposals Ofwat said it would: encourage greater sector collaboration – for example, by introducing standardised measures of sludge quality and considering regional collaboration;

• improve information to support the market; and

• “look to ensure that company performance commitments related to bioresources at PR24 are more joined-up with our long-term plans for the market and do not have unintended consequences for market development.”

Ofwat said it would work with environmental regulators and other stakeholders to ensure other market barriers were addressed.