Price Review 2024: Ofwat sets out framework to deliver better outcomes for customers and the environment

Ofwat has today set out its draft methodology for the upcoming Price Review (PR24) with a focus on securing better outcomes for customers and the environment.

PR24, which will cover the period 2025-2030, will drive water companies to step up to deliver in the face of urgent challenges on the environment and climate change. The review will push companies to find new and innovative ways of delivering affordable, reliable and resilient services for all.  

Ofwat has highlighted four key ambitions for PR24:

• Focus on the long term: The sector must address immediate and long-term challenges.  Business plans for the next five years will be set in the context of a 25 year delivery strategy, and Ofwat will hold companies to account for the improvements that they need to deliver.    
• Deliver greater environmental and social value: A better environment for everybody will be delivered through immediate and sustained action to improve performance on river water quality, bigger steps towards net zero, and more nature-based solutions.
• Reflect a clearer understanding of customers and communities: New open public meetings on companies' plans, more robust research to understand and reflect customers' views, and stronger partnership working will deliver better outcomes.
• Drive improvements through efficiency and innovation: Companies need to step up with ambitious plans that will help set the benchmark for resilient, affordable services for all.

The consultation on the draft methodology provides stakeholders with an opportunity to help Ofwat shape the future of the sector and guide the business plans of companies.

David Black, Chief Executive, Ofwat said:

“Water and wastewater companies provide an essential service for customers across England and Wales. We've listened to people's concerns and ambitions for the water sector.  We understand the urgency of the environment and climate change challenges and the pressure on people's finances.  In PR24, companies need to step up to meet these challenges by finding new and innovative ways of delivering reliable and resilient services."

Aileen Armstrong, Senior Director, Company Performance and Price Reviews, Ofwat said:

"This price review matters for all of us and our environment.  We are keen to hear views on our proposals from everyone with an interest in the future of this vital service."

"This price review will continue to push the sector to deliver more for customers and the environment. We are proposing changes to ensure that customers' voices are heard more clearly and are better understood in this review than ever before.  We're also proposing to focus attention on the outcomes that really matter now and for the long term, and that companies should set their plans in the context of their strategies for the next 25 years. Overall, our proposals are designed to challenge companies to deliver affordable water and wastewater services that meet the needs and expectations of customers and the environment.” 

Notes to Editors

• PR24 will set the price, service and incentive package for 2025-2030 in December 2024.  Ofwat's methodology is the framework that sets out the expectations for companies' business plans, which must be submitted in October 2023, and how those business plans will be assessed.  The consultation on the draft methodology will close on 7 September 2022, and the final methodology will be published in December 2022.  
• Ten proposals for PR24

1. Companies will prepare Long Term Delivery Strategies, looking at the next 25 years, with adaptive pathways, and set their 5 year business plans in this long-term context
2. New common performance commitments on key environmental areas including improving river water quality, strengthening biodiversity and and reducing greenhouse gas emissions
3. New approaches to drive improvements - A 'net zero challenge' pot for the most efficient companies to go further and faster on reducing carbon, and greater certainty about funding into the future for nature-based solutions
4. Greater use of markets where they can drive improvements for customers and the environment – more direct procurement for customers of large infrastructure projects, and more opportunities for innovation in developer services and bioresources. 
5. Steps to ensure companies recover their costs fairly from current customers and future generations
6. Consistent, cross-sector customer research to ensure that customers from all companies are heard.  More robust approaches to hear customers' priorities, any regional variations in customers' views, and views on the acceptability and affordability of business plans
7. New open challenge sessions to give customers and wider stakeholders the opportunity to share concerns and ask companies questions directly. 
8. A new collaborative approach in Wales, reflecting the specific ways of working in Wales. 
9. Companies to set out their proposals for dividends and performance-related executive pay – and show how the policies are aligned to what the company delivers on the priorities for customers and the environment
10. Ofwat will provide more information (base cost models and information to inform incentive rates) in advance of business plan submissions, allowing companies to focus on long-term, strategic planning.  We are also combining the business plan assessment and draft determination phases of the review, resulting in 2 phases rather than 3.  
     

• An overview of the PR24 proposals and the full methodology are on the Ofwat website:
• • PR24 page on the Ofwat website
  • PR24 draft methodology
  • PR24 overview (English)