Ofwat has potentially opened the door for the price control period for parts of the water sector to be extended from the current five years.
According to Utility Week, the regulator has said that for future price reviews, elements of the wholesale value chain, such as sludge treatment, could be given a longer price control period than the five years currently experienced by the entire sector.
Speaking at a recent Westminster Energy, Environment and Transport Forum, Ofwat senior director for Water 2020 David Black said: “Long term investments are being made and it is quite easy to see a case for moving to a longer term control than five years for part of the wholesale value chain.”
He did add a cautionary note to this, adding that with the current reforms being introduced to the sector “it seems unlikely this will be the last stop for those changes, so do we want to lock in those price controls for a longer period?”
The comments come after Ofwat consulted on whether water companies should be set regulatory targets around crucial areas of delivery such as customer service as far out as 2040.
KPMG global head of asset management Mel Karam said that a longer investment horizon with the regulatory regime may help investors and the industry plan and deliver projects for the long term, although he added that shift to totex may also help achieve that goal.
He added: “The five yearly investment cycle has never really lived up to enabling long term investment to be substantially justified, particularly investment in innovation.
“In my view is not just investors’ investment horizon that has led to a shorter term focus, it’s to do with the investment horizon within the industry itself.”