Water UK and Ofwat collaborate to assess Covid impacts

Water UK and Ofwat are collaborating to reach a shared understand of the impact Covid 19 is having and could potentially have on water companies, together with the risks and opportunities this presents and the resulting impacts on customers, investment/investors and the environment. The parties said the purpose is not to arrive at definitive agreed positions or to prescribe responses, but to understanding further and inform the regulatory response.

There are three work streams:

to develop a set of common economic, social and behavioural change scenarios that the sector may be subject to, to form a common basis for comparison and stress testing of various Covid-19 effects;

to identify which aspects of water company businesses may be significantly impacted (positively or negatively) in the scenarios developed in work stream 1, and analyse the impact Covid 19 has had on these identified aspects to date. It will also consider mitigation activities and opportunities to do things differently; and

to estimate how companies may be affected under the scenarios in work stream 1.

The purpose of this work is to identify the different responses that may be required by companies to reduce the negative effects attributable to Covid 19 and to maximise any potential gains. A briefing note pointed out: “This work will recognise that price controls are set with an expectation that water companies and their investors will need to deal with changing circumstances, including exogenous shocks.”

Ofwat and Water UK have formed an advisory group of four to five representatives each from industry and Ofwat with the former chosen to reflect the diversity of companies, including a water-only company. The work will be supported by Frontier Economics.