Ofwat consults on approach to reconciliations for PR19

Posted: Monday 9th March 2020

Ofwat has published a consultation on the final reconciliations for the 2020-2025 period.

In its most recent price review, that for 2019, Ofwat set a series of challenging incentives to encourage companies to deliver more of what customers wanted. Within this process, Ofwat also set a series of reconciliation mechanisms which enable it to adjust the amount of money companies receive. These reconciliations are important and in the 2019 price review resulted in a net revenue adjustment of more than £1.8bn.

This process is needed for a number of reasons, such as:

• ensuring that companies receive financial incentives to encourage them to operate in customers interests, for example in terms of cost efficiency and delivering the outcomes that customers want; and

• ensuring that companies receive the right amount of revenue across the period, and not too much or too little compared to what we have allowed.

The deadline for consultation responses is 29 April 2020.

David Black, Senior Director at Ofwat said:

“Our approach to this reconciliation process marks a significant evolution of our approach at the 2014 price review because it brings together a broader range of issues such as how we propose to treat issues like tax, inflation and value for money.

“The reconciliations form an important part of how we regulate water companies and we expect them to incentivise companies to collect the right amount of revenue; result in reduced bill volatility; and deliver on, and potentially exceed the stretching performance commitments.”

Alongside this consultation, Ofwat has also published a PR19 reconciliation rulebook consultation on the models.

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