Ofwat

Learn about how Ofwat operate and what they cover…

History:

  • Ofwat is a non-ministerial government department founded in 1989 as the water and sewage industry became privatised under the 1989 Water Act. 

Purpose & Duties:

  • Protect the interests of consumers by promoting competition between water companies.
  • Ensure that water companies are providing a sufficient service
  • Making sure water companies can make fund and profit from fulfilling these functions.

Price Review (PR):

What is a Price Review?

A price review is a process of analysing the price of a product or service to determine if it is set appropriately.

 

This can be done for a variety of reasons, including:

  • To ensure that the price is competitive with other products or services on the market.
  • To determine if the price is profitable for the seller.
  • To make sure that the price is aligned with the product’s value.

How often do Price Reviews occur?

Price Review’s at Ofwat occur every 5 years. The last review was in 2019 meaning the next one is due in 2024.

 

According to OFWAT the key indicators for assessing cost are:

 

‘Scale; treatment complexity; network topography and population density.’

How do Ofwat govern Pricing?

Ofwat have the authority to set price controls using what is called RPI+/- K

 

These price limits limit how much revenue a company can make from customers they supply whilst also factoring in how much is needed to invest into their infrastructure.

 

There are advantages and disadvantages using RPI +/I K:

Advantages:

  • The regulator can choose prices depending on how the water companies and the market act and can regulate how much the consumer pays.
  • These regulations can help promote competition and prevent monopolisation.

Disadvantages:

  • It can be difficult and costly to work out what the pricing levels should be set to.
  • Regulators can be too lenient or strict in setting their pricing depending on the amount of regulations in place.

Asset Management Plan (AMP):

What is an Asset Management Plan?

  • An asset management plan (AMP) is a plan created by an organisation to deliver an agreed level of service relating to the company’s infrastructure and assets.
  • This normally covers multiple assets within a company, taking what is called a system approach.
  • The purpose of an asset management plan is to ensure that the organisation’s assets are managed in a way that is efficient, minimises their risk, and increases their value.
  • An AMP should be based on a clear understanding of the organisation’s asset portfolio, its strategic objectives, and its risk appetite.

What is the latest AMP?

Asset Management Period 8 (AMP8) commences on 1 April 2025 and will last for 5 years.

 

AMP8 will be applied to all Water Companies across England and Wales.

 

The purpose of AMP periods, set by industry regulator Ofwat, is to increase efficiency and service levels within the sector.

 

The AMP8 programme is set to be up to 3-4 times bigger than any previous AMP period and is anticipated to transform the water industry’s commitments towards climate change, service, society and the environment.

 

It is hoped that these commitments will ensure a more efficient and sustainable service, but it will be a challenge for these companies to meet these targets.