Price reviews

Water and sewerage services in England and Wales are not provided in competitive markets. Most people receive their water services from a licensed monopoly company. Only very large business customers are able to choose their supplier.

Because competition is limited, there is a risk that these companies will not deliver the services their customers want. They may also charge higher prices to increase their profits. This is why they need to be regulated. And it is why Ofwat was created when the water and sewerage sectors were privatised in 1989.

One of the ways we regulate is to set the price, investment and service package that customers receive. This includes setting limits on the prices the companies can charge their customers. When we do this we must balance the interests of consumers with the need to make sure the sectors can finance the delivery of water and sewerage services. We also need to make sure they are able to meet their other legal obligations, including their environmental and social duties.

We currently carry out a review of these price limits every five years. We will carry out an additional review of the non-household retail price control in 2016.

Setting price limits

Our job is to protect consumers’ interests. Most customers cannot choose their supplier, so one of the ways we do this is to decide the price and service package (‘price controls’) that monopoly water and sewerage and water only companies must deliver. These price controls affect the bills that customers pay and the water and sewerage services consumers receive – so they are very important.

We currently set wholesale price controls for the water and sewerage companies every five years and we will last set them in 2014. These price controls apply to customers’ bills and the services they receive between 2015 and 2020.

When setting price control, we have a duty to:

  • make sure that each company has enough money to finance its functions
  • protect consumers’ interests.

This means that we must balance the interests of consumers with the need to make sure the sectors can finance the delivery of water and sewerage services. We also need to make sure they are able to meet their other legal obligations, including their environmental and social duties.

Further information

We will use our future price limits statement of principles to guide our price setting process.

There are two ways in which price limits can be changed between price reviews: