What does this means for the future of water?
The CMA have announced a significant increase to the rate of return for the five water companies who appealed their PR24 rulings.
What’s the context?
Every 5 years, water companies go through a price review process to help shape their business plans for the next asset management period (AMP). The current cycle is called Price Review 2024 or PR24. If you need a recap of what’s happened to date, you can listen to Lucy Kinder and Victoria Nevin’s podcast:
https://jessicamilligan.podbean.com/e/pr24-and-what-it-means/
Or view the video on youtube:
https://www.youtube.com/watch?v=gXjGK_0ntSc
In February 2025, six companies – Anglian Water, Northumbrian Water, South East Water, Southern Water, Wessex Water and Thames Water – argued that Ofwat’s final determination for their business plans allowed insufficient returns to support the scale of investment required to meet environmental, resilience, and customer service goals.
Five of these companies chose to exercise their legal right to request a redetermination of Ofwat’s decision by an Independent Group of experts within the UK’s Competition and Markets Authority (CMA). Thames Water and Ofwat agreed that Ofwat would defer making their CMA referral until an investment solution had been secured for the company. Thames has until 22 October 2025 to decide whether it will pursue a review of its decision.
The five disputing companies serve over 7 million household and business customers and have a combined annual revenue of around £4 billion.
What did the CMA say?
All five companies that appealed Ofwat’s decisions have received an increase in allowed funding. The CMA has increased total allowed expenditure by £556 million compared to the £2.7 billion increase that water companies had asked for in making their appeals. In technical terms, the interim decision raised the weighted average cost of capital (WACC) by 26 basis points, meaning the allowed return has increased from 4.03% to 4.29%.
| CMA provisional redeterminations AMP8 allowed revenue | |||
| Disputing Company | Ofwat’s PR24 FD AMP8 allowed revenue (£m) | £ million change from Ofwat’s PR24 FD AMP8 allowed Revenue | Percentage change from Ofwat’s PR24 FD AMP8 allowed revenue |
| Anglian | £9,634 | £117 | 1.2% |
| Northumbrian | £5,205 | £52 | 1.0% |
| South East | £1,679 | £72 | 4.3% |
| Southern | £6,466 | £179 | 2.8% |
| Wessex | £3,632 | £137 | 3.8% |
This could suggest that water companies concerns on funding required service improvements were valid, and that a more generous return is necessary to attract capital and drive innovation. However it is worth bearing in mind that:
- This is not the first time the CMA have agreed with water companies and awarded more funding that Ofwat. For PR19, 4 out of 17 companies decided to appeal and there was over £500 million in additional revenue.
- Because the review process is very drawn out, it has been 10 months since Ofwat released their final decisions during which time, the financial environment and market context has moved on. This can work for or against companies. This time, the gamble has paid off.
- It’s not all good news for customers. This extra funding is expected to result in an average increase of 3% in bills for customers of the disputing companies, which is in addition to the 24% increase for customers of these companies expected as part of Ofwat’s original determination.
What Does This Mean for the Sector?
- Investor certainty (if not confidence)
The CMA process is always an uncertain time for company investors. Those that have had their funding increased may see some confidence restored in the deliverability of plans. But arguments were made that funding was woefully insufficient and companies are under real pressure to modernise infrastructure, reduce pollution, and improve customer outcomes. - Appealers always prosper?
For the last 2 price reviews we’ve seen an increase in companies appealing and more funding awarded. With more companies willing to challenge regulatory decisions, the PR24 appeals may set a precedent for a more assertive stance from the industry. This could lead to a more dynamic, albeit complex, regulatory landscape.
- Regulatory balance reconsidered
This price review comes amid heightened scrutiny of the water industry and its regulation. The Independent ‘Cunliffe review’ earlier this year called for “fundamental reform on all sides”, recommending 88 changes to the sector including the replacement of Ofwat with new, tougher regulator. The government has said the current system is “failing the environment, customers and investors” and has signalled it will pursue wide-ranging reform, leaving future major structural decisions to ministers rather than to the redetermination process.
Long lasting impacts are hard to predict, but whatever the outcome it seems as though change cannot be avoided.
What happens next?
The CMA will now consult on the provisional decision.
CMA appeals usually take 6 months but following agreement from Ofwat to extend this to 12 months (due to the number of companies requiring review), the statutory deadline for them to make a final decision is not until 17 March 2026.
In the meantime, Thames will announce later this month whether it wishes to appeal (or seek another extension). And at Skewb, we will continue to help our clients navigate this complexity with clarity, confidence, and purpose.
By Victoria Nevin
Victoria Nevin is Head of Delivery at Skewb. To speak with her about this topic in more detail, you can connect with her on LinkedIn.
