Most 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 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 controlling prices companies can charge their customers. When we do this, we have a duty to balance consumers’ interests with the need to ensure the sectors are also able to finance the delivery of water and sewerage services. We also need to ensure 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 carried out an additional review of the non-household retail price control in 2016.
2024 price review
We are currently working on the price review for 2024 (PR24). This will set price controls for water and sewerage companies for 2025 to 2030.
We consulted on the way we set price controls by published our draft methodology in July 2022, and will set final price limits in December 2024.
Read more about the 2024 price review and sign up to get the latest news
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’).