Ofwat's draft determinations and the future of the water industry

Introduction of draft determinations and investment announcements

Today Ofwat released their slightly delayed draft determinations¹ on the Business Plans submitted by water companies in October 2023. Alongside this the Environment Secretary, Steve Reed, announced several measures to help “clean up the water industry”². The headline of £88bn investment has been widely reported in the press, this is significantly lower than the water companies ask of £105bn (16%), but also much higher than £59bn that has been available in AMP7. Customers will see their bills increase by £19 a year or 5p a day, a 21% increase above inflation on average.

Customer impact and industry challenges

So, what will customers get for this increase? A reduction in leakage and spills from CSOs, improving water quality both at the tap and in our rivers, as well as progress to meeting the long-term targets set for 2050. There are divided opinions on whether this is good value for money for customers, Water UK (which represents the water companies) stating that “Ofwat has failed to be realistic about the levels of investment needed and what it will take to deliver and maintain necessary infrastructure” ³, while CCW (who represent customers interests in the water sector) highlighted that the cuts Ofwat has determined might not be enough “Millions of people will feel upset and anxious at the prospect of these water bill rises and question the fairness of them given some water companies’ track record of failure and poor service.”⁴ This statement was echoed by many taking to social media.

This emphasises the polarising nature of the sector at the moment, an industry that customers believe have been pocketing money that should have been invested into pipes and pumps, while the water companies are trying to demonstrate the investment needed to keep one of the UKs most critical infrastructure operating.

In essence, both have valid points, but most importantly, it highlights that these problems now need solutions that are seen as equitable by all. This is a view obviously also held by the Environment Sectary as he talked to water companies CEOs to “..set out his plans to work in partnership with the sector and investors to attract investment, jobs, and clean up the nation’s polluted waterways.”²

This is sentiment demonstrates an acknowledgement of the problems the sector faces, specifically the issues that the whole sector (regulators, water companies, and supply chain) have with requirement of staff, that is not shown in the best light by the press.

Looking ahead to AMP8

Assuming that there is minimal movement between draft determinations and the final determination in December, AMP8 will be the do more with less AMP as the sector looks to evolve into one that can deliver the long term requirements of the nation, taking into account the impacts of a changing environmental and political landscape while delivering the expected level of service to customers. This will mean doing this smarter, looking at different ways of working, novel and innovative solutions as well as making the most of the data that we have been collecting for decades to make informed decisions.

RPS and Tetra Tech's role in preparing for AMP8

RPS and the wider Tetra Tech company have been assisting our clients to prepare for AMP8, assisting them with business plans and the work that will now be needed until August when companies need to respond to Ofwat. We have been assisting with preparatory work to ensure that AMP8 can be begin effectively in April next year. This also expands to working on some of the large supply schemes that have been already proposed, that will be delivered over the coming years.

Alongside these activities our operations teams have been supporting leakage and sewerage investigations, assisting the water companies with their day-to-day activities. The announcements that have been outlined in the last few days will mean a shift change in the way that the sector operates, hopefully for the good of the industry. The challenges that now lay ahead of us are those that Tetra Tech are ready to embrace and tackle head on with our Leading with Science Approach.

^{[1] 2024 price review - Ofwat}

^{[2] Government announces first steps to reform water sector - GOV.UK (www.gov.uk)}

^{[3] Response to Owfat Draft Determinations | Water UK}

^{[4] CCW statement: People will feel upset and anxious at water bill rises - CCW}