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Navigating PR24: Safeguarding Resilience and Investment
Every five years, water companies produce business plans, which Ofwat scrutinise and challenge to determine the amount of money each water company receives for the delivery and investment of their water and sewerage services. If a water company is unsatisfied with the determination made by Ofwat on their business plan, they can appeal the decision and request that the Competition and Markets Authority (CMA) review and “redetermine” the funding allowances. Currently, there are five water companies appealing the PR24 determinations in the hope of receiving more funding than Ofwat has allowed.
Lianna King
Background
Ofwat is the economic regulator of water companies in England and Wales. Every five years, water companies submit business plans to Ofwat. Water companies outline how they will spend money in their region to maintain current performance and deliver improvements to their services. Investments, for example, may be for enhancing environmental protection and/or improving operational performance. Ofwat scrutinise and challenge these business plans before making determinations, this is referred to as a price review. Ofwat determines the amount of money each water company receives for the delivery and investment of their water and sewerage services. If a water company is unsatisfied with Ofwat’s determinations, they can appeal the decision where they submit a statement of case discussing individual cases and specific issues to the CMA. The CMA is legally obliged to review Ofwat’s determinations.
Ofwat provides a reference for each of the water companies that are appealing the determinations. Following this, a panel (independent of the CMA board) reviews the appeal, they may agree with Ofwat’s final decision or disagree, suggesting that the determinations be “redetermined”. The CMA can take up to six months to review the appeal from when they receive the reference from Ofwat. If required, an extension may be requested, where an additional six months can be used to complete the appeal process, provided that Ofwat agrees to the change in deadline.
Understanding PR19
During the previous price review period (PR19) from 2020-2025, Anglian Water, Northumbrian Water, Bristol Water and Yorkshire Water (referred to as the disputing companies) appealed Ofwat’s PR19 determinations, stating that an additional £1.8 billion revenue allowance was required (collectively). The disputing companies stated that the determinations were overly focused on reducing the cost to consumers bills, and that funding to improve other aspects, such as resilience, were insufficient.
Following the CMA’s redetermination, the disputing companies received a small £400 million increase in their revenue allowance, compared to the £1.8 billion they had requested during the appeal. The CMA concluded that this increase was due to availability of more recent data that was inputted to efficiently forecast costs.
PR24 and why this matters for the Water sector
PR24 refers to the current price review period, where business plans for 2025-2030 were submitted. Ofwat made its determination for the PR24 business plans on 19th December 2024, allowing for £104 billion investment. Five water companies, Anglian Water, Northumbrian Water, South East Water, Southern Water and Wessex Water have appealed the determination. The disputing companies submitted statements of cases to the CMA on 21st March 2025. The CMA requested an extension, which Ofwat granted, the statutory deadline for the CMA redetermination is the 17th March 2026.
Within the statements of cases, the disputing companies stated that it would not be financially viable to deliver the necessary improvements in their regions with Ofwat’s PR24 determinations. For example, in their statement of case, Anglian Water argued that Ofwat’s final decision “fails to strike an appropriate balance of risk and return capable of attracting the level of investment needed… and puts the long term financial and operational resilience of the Company into jeopardy”.
Specifically, they suggested that without greater funding, they will be unable to continue improving critical leakage reduction projects in their region. This is important to Anglian Water as they are based in one of the driest regions within the UK and need to mitigate water wastage. Therefore, they have requested a £68 million adjustment to their leakage base allowance.
The implications
The goal of Ofwat’s price review process is to ensure water companies operate as efficiently as possible. Nevertheless, if a water company is underfunded, this could adversely impact their investment programme and resilience. This could affect their ability to deliver infrastructure projects and improve the condition of their assets, which could lead to deteriorating company performance.
Ultimately this could reduce the number and/or scope of projects available for consultants, and the number of resources required.
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