Ofwat tells MPs of further bill pressure from even more investment and market shifts

Ofwat told the Environment, Food and Rural Affairs (EFRA) Committee last week that final allowed totex for 2025-30 is “likely to go up further” than its draft determinations had set out. That is in large part because Ofwat’s “sister organisations” (its fellow regulators) had requested an additional £7bn of investment since the drafts were published.

Furthermore, Ofwat representatives at the hearing highlighted that financial markets have moved since September — market rates of return have increased, which will provide further upward pressure on bills.

Ofwat said it wanted to deliver a fair bill for customers and a fair rate of return for capital providers. The use of competitive procurement for major, riskier projects would not, in Ofwat’s view, drive up the cost of capital further.

Ofwat continued to state that cash would be clawed back from companies that failed to invest as agreed in the next five years.

The regulator was appearing as part of the EFRA Committee’s inquiry into the ‘Work of the department and its arm’s length bodies’. Questions covered the financial stability of the water sector including the current situation at Thames Water; the performance of water companies; and regulation of the industry.