Ofwat has published its draft methodology for the next water industry price control (PR19). As expected, the regulator has signalled that the control will be challenging for companies, with a significant decrease in the allowed rate of return, more challenging cost efficiency targets, and various incentives that are skewed to the downside for firms. Economic Insight has advised companies and the regulator extensively on the approach to the PR19 control – and our analysis appears to have influenced the detail of the method in a number of areas. These include: the introduction of efficiency benchmarking models for retail and a revised approach to demand risk in water resources. Water companies will now be working at pace to develop their Business Plans for submission to Ofwat.
