Utility Week

12 | APRIL 2022 | UTILITY WEEK Water Download report PR24: baby steps or a bold leap forward? As water companies start the long process of drawing up their business plans for the next price control, a new report from Utility Week and PA Consulting explores their hopes and fears for PR24. W ater companies' business plans for the years between 2025 and 2030 cover one of the most critical peri- ods since privatisation. Firms face the twin challenges of reduc- ing their carbon footprint and setting a course to improve resilience against the inev- itable consequences of climate change. They face these huge undertakings amid a backdrop of rising consumer expecta- tions of the sector, both in the level of ser- vice it provides and its guardianship of the environment. Achieving these feats will require ambi- tion and innovative thinking from water companies but will also need a step-change in the regulatory regime to ensure it reflects the evolving demands on the sector. These key themes of the PR24 price con- trol are explored in a major new report from Utility Week, produced in association with PA Consulting. The report is based on interviews with senior figures across the water sector, sev- eral of whom also took part in a roundtable to launch the report and discuss its findings. Attendees at this event shared their con- cern that the next price control will represent an evolution of the current regulatory regime as opposed to the step change needed to make long-term goals achievable. They questioned the rationale behind five-year periods and warned that it was "already too late" for PR24 to represent a rad- ical departure from the current framework. The report shows universal backing for Ofwat's longer-term approach to Asset Man- agement Periods (AMPs), which requires companies to take a 25-year view. However, it also highlights concerns about a lack of flexi- bility in spending programmes as well as cer- tainty of spending guarantees across AMPs. Ofwat said AMPs should be viewed as building blocks within a longer-term plan but sector leaders taking part in the launch event seemed wary about this ambition, with the framework labelled "very restrictive" by one insider. They said: "Ofwat has said there will be long-term thinking but I'm sceptical at this stage to see whether that is a genuine aspi- ration of the regulator or whether that's a moniker while we're still stuck in five-year chunks." Another questioned the legitimacy of thinking in five-year sections when that is far removed from how customers view water and wastewater services and therefore sug- gested the system was "crying out for whole- sale reform". However, they added that they did not expect to see that at PR24, but per- haps at PR29. Others agreed total reform was required but stressed this would take time. "PR19 was a missed opportunity," one insider said. "That's five years gone and PR24 could be the same if the regulatory framework is not ready." Another said: "I worry that the direction of travel for PR24 doesn't address the current issues. PR24 does feel like an evolution of PR19 rather than a significant step change to solve some of the problems we face." The report also gauges views on the thorny issue of the Weighted Average Cost of Capital

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