Most water and sewerage services in England and Wales are not provided in competitive markets. Most people receive their water services from the licensed company for their area. Only business customers in most of England 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 authorities 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 controls that limit what companies can charge their customers. When we do this, our duties require us (in summary) to do so in the manner we consider is best calculated to:
- further the consumer objective to protect the interests of consumers, wherever appropriate by promoting effective competition;
- ensure that water companies properly carry out their functions;
- ensure that companies are able to finance the proper carrying out of those functions; and
- further the resilience objective to secure the long-term resilience of companies’ systems and to secure that they take steps to enable them, in the long term, to meet the need for water supplies and wastewater services.
We currently carry out a review of these price limits every five years.
2024 price review
We are currently working on the 2024 price review (PR24). This will set price controls for water and sewerage companies for 2025 to 2030.
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In-period determinations 2020-25
At the 2019 price review we set water companies service targets (‘performance commitments’) during 2020-25. This encourages the companies to deliver on the objectives that matter to today’s customers, future customers and the environment.
Most of companies’ performance commitments have rewards and penalties (‘outcome delivery incentives (ODIs)’) associated with them.
The majority of these ODIs are financial.
- If a company performs better than the performance commitment level, it may get a financial reward (‘outperformance payments’)
- If a company performs worse below the performance commitment level it may pay a financial penalty (‘underperformance payments’)
In this way, each company’s management and its investors are encouraged to deliver what customers want. They get outperformance payments for doing well; and make underperformance payments if they do badly.
Most of the outperformance or underperformance payments companies get for financial ODIs are paid to or recovered from each company every year during 2020-25 (or ‘in-period’).