Ofwat takes a long-term view of 2024 price review

Ofwat set four strategic goals for PR24 when it unveiled its initial thinking on the framework for the next price review on Thursday.

According to the regulator, a successful PR24 will: increase focus on the long term; deliver greater environmental and social value; reflect a clearer understanding of customers and communities; and drive improvements through efficiency and innovation. It also said it would retain but adjust its outcomes framework; extend and improve its cost assessment work; and review the risk/return framework.

Among the specific proposals put forward for comment until 22 July ahead of development of a draft methodology next summer were:

• companies clearly positioning their five-year business plans in the context of long-term strategies;

• setting out information on base costs, initial views of the service levels that base costs could provide, appropriate incentive rates and financing costs before business plans are submitted;

• providing additional clarity on expectations for future price reviews;

• reducing the number of Performance Commitments and focusing them on areas of enduring importance to customers and the environment with most of them common to all companies, with fewer bespoke commitments;

• reducing the number of stages in the price review process to enable a greater focus on the long-term, potentially by merging the initial assessment of business plans and draft determinations stages;

• making use of targeted challenges, as with the 15% leakage reduction target at PR19 – two prospective areas being water efficiency (including in the business market) and storm overflows;

• using standardised or national research designed and implemented collaboratively with the sector.

• customer Challenge Groups will not be required at PR24 with companies instead possibly asked to put in place challenge and assurance solutions that meet their specific needs and ambitions;

• encourage partnership working and supporting new ways to deliver services including through nature-based solutions and innovation; and

• develop existing markets.