Water companies are now embarking on the delivery of the outcomes required under their PR14 settlements.
The settlements were generally viewed as a reasonably successful result for all parties concerned, including customers, investors and the environment, notwithstanding that Ofwat has required the companies to deliver some stretching efficiency measures.
A number of features of the PR14 settlements will continue to attract stakeholder attention during at least the early part of AMP6. These include the operation of outcome delivery incentives (ODIs), and how the reward and penalty mechanisms will work in practice.
In addition, commentators are eagerly awaiting the first price referral determination from the Competition and Markets Authority. Bristol Water complains that Ofwat drew incorrect conclusions from its costs model which produced a disproportionate detriment for the Company by comparison with other water undertakers. The short term uncertainty of the referral and the possibility of a very challenging price cap throughout AMP6 resulted in a downgrading of Bristol’s outlook from stable to negative, although a successful CMA determination could see this reversed. Of huge interest to everyone around the sector will be the extent to which the CMA disagrees with Ofwat’s methodology and analysis in producing its determinations.