OFWAT, the economic regulator of the water and sewerage sector in England and Wales, has set out the price controls that companies must use for regulated activities from 2015 to 2020. This new economic settlement brings greater certainty on the lower end of future earnings in the sector. It also comes with upside potential from incentive mechanisms within the controls. Changes in the Water Act 2014, on consolidation and on opening non-household markets to competition in 2017, present owners and operators with new oportunities for consolidation and restructuring.

The Price Control Mechanism -

The system of regulation of water and sewerage companies in England and Wales controls charges to household and non-household customers. This is done by a cap on the amount that can be taken from regulated customers. The cap is set for 5 years and reviewed quinquennially for the next 5 years. The cap is generally expressed as an indexation of a basket of historic charges by reference to RPI+K, where K is an adjustment factor for e.g. financial returns, environmental spend required by law and efficiencies that the business should make.