Ofwat has today published the final methodology for the upcoming Price Review (PR24). The need for substantial improvement in the sector is clear, and PR24, which will cover the period 2025-2030, will drive water companies to step up and deliver improvements for customers and the environment.
The final methodology sets out the framework which water companies will follow, leading to final decisions on each company’s future plans, and customers’ bills, in December 2024.
The methodology set out today will see water companies need to meet new environmental commitments and improve service to customers.
Ofwat is also clear that it is not all about future plans and, in his foreword to today’s publication, David Black, Chief Executive, emphasises that companies need to act now to deliver improvements ahead of the next price review taking effect:
“Companies have fallen short of the expectations of customers and communities – they need to seize the opportunity to transform their performance at PR24. Turning around performance on the environment and improving resilience will require innovation, new approaches to managing water and investment.
“The sector needs to act now – in advance of PR24. Significant improvements are needed to drive down water demand, improve customer service and reduce pollution incidents. We are looking to companies to respond to urgent need for change and set out ambitious plans to improve outcomes for customers and the environment”.
The key elements of the PR24 framework include:
- New environmental commitments for companies including on the use of storm overflows, improving biodiversity, improving bathing water quality and reducing greenhouse gas emissions
- Steps to drive companies to deliver excellent customer service, and to maintain and improve the health of their assets, so that customers have consistently good service, every day
- Clear expectations for companies to address the long-term challenge of ensuring we have sufficient water resources, including through steps to reduce leakage and water consumption and increase water supply, with a new fund of up to £100 million to stimulate new approaches to water efficiency
- Setting clear expectations on companies’ dividend and executive pay policies, with the prospect of additional measures on performance-related pay to protect customers’ interests if these expectations are not met
- Putting the views of customers at the heart of the process, with each company conducting robust customer research and holding two public meetings in 2023
- Incentives for companies to be more efficient and innovative, including through a £300 million Innovation Fund to support further sector-changing ideas
- Greater use of markets where they can deliver better value for customers by driving down costs while maintaining quality, including in how major investment projects are procured, and in the operation of the markets for developer services and bioresources
During the next phase of the price review process, companies will develop their business plans and long-term delivery strategies which will set out the expected level of investment needed to deliver the changes required. Companies will be expected to carefully consider the affordability of their plans, looking to make efficiencies when delivering investment projects and balancing the interests of customers, both current and future.
Aileen Armstrong, executive director for the PR24 programme, said:
“Companies will need to deliver substantial change in the coming years. We need to have well-run, resilient companies, delivering quality service for their customers and a better outcome for the environment at a price that remains affordable”.
Notes to Editors
- PR24 will set the price, service and incentive package for 2025-2030 in December 2024. Ofwat’s methodology is the framework that sets out the expectations for companies’ business plans, which must be submitted in October 2023, and how those business plans will be assessed.
- The overview for the final methodology can be found on the Ofwat website alongside other relevant documents.