Ofwat’s Final Methodology and the recent RIIO-ED2 Final Determinations – at a glance.

At the end of November 2022, Ofgem published its Final Determinations for the RIIO-ED2 price control review. A couple of weeks later, we can now see Ofwat’s updated thinking for the PR24 price review. The table below compares the views of the two regulators.

Whilst there is a lot of material to digest, our initial thinking is that the two regulators are broadly consistent in their thinking. The difference in the WACC is striking but could be justified in terms of the differential risks between the two sectors. We also think Ofwat’s focus on improving performance is revealed by their greater willingness to use incentives.

Comparison of latest Ofgem and Ofwat regulatory positions

[1] Note that Ofwat’s sharing mechanism only applies to Outcome Delivery Incentive (ODI) payments while Ofgem’s mechanism applies to overall out- or under-performance.