Ofwat sets out its expectations of long term strategies for PR24

Ofwat has set out for discussion until 6 January its expectations of what companies should include in their long-term delivery strategies as part of the business plan submission for PR24. This included a series of common requirements and eight common "reference scenarios" to help develop and assess the strategies.

The regulator recapped that from PR24, five-year price reviews will be treated as staging posts in the overall trajectory towards long-term outcomes, with a focus on appropriate investment sequencing and adapting to an uncertain future. It called for firms to set out their strategies in terms of adaptive pathways up to 2050, including by identifying future trigger points, beyond which a particular activity would no longer be adequate for meeting long-term objectives, and a different option or strategy would be required.

Ofwat said it wanted to support long term investment in the sector, and pointed out that long term strategies should focus on requirements for enhancement expenditure. The eight common reference scenarios covered ‘high’ and ‘low’ assumptions for four material drivers of uncertainty around long- term enhancement spending: climate change, technology, demand, and environmental ambition. It said: “We will expect companies to show, through the use of adaptive planning, that their long-term delivery strategies are flexible enough to efficiently deliver long-term ambitions under each scenario.”

Ofwat added that it expected companies to use go beyond these scenarios and use wider scenario planning and other techniques to alleviate uncertainty too.

In a letter to regulatory directors, Aileen Armstrong, Ofwat senior director, company performance and price reviews, also set out expectations on what companies need to do through existing long term strategic planning frameworks, to ensure a clear and consistent long-term strategy is presented in PR24 submissions.

These include water resources management plans (WRMPs), drainage and wastewater management plans (DWMPs), the water industry national environment programme (WINEP) in England, and the national environment programme (NEP) in Wales. Armstrong noted: "The outputs from strategic planning frameworks will need to inform, and align with, each company's long-term strategy.”