Ofwat seeks licence modifications to cater for fee cap change

Ofwat has formally proposed to modify all water companies’ licences to enable it to change the regulation fee cap in Condition N.

This followed a June consultation, in which Ofwat explained that since 2015 its budget has been set by Treasury through the Comprehensive Spending Review (CSR), which has a spending limit that is separate from and can be different to the regulation fee cap in Condition N.

This is challenging as its remit as funded by the CSR has grown to include additional regulatory functions such as overseeing the business retail market, delivering Direct Procurement for Customers and establishing the Regulators’ Alliance for Progressing Infrastructure Development, but the regulation fee cap formula in Condition N only assumes inflation adjustments to historical budgets.

Ofwat consulted on replacing the historical formula with a new cap, to ensure its Treasury-agreed budget can be funded and to future-proof the fee cap.

It is now seeking representations by 6 October to the formally proposed modifications.