Water Companies: Investment

Department for Environment, Food and Rural Affairs written question – answered am ar 23 Mai 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Lord Sikka Lord Sikka Llafur

To ask His Majesty's Government what is their assessment of Ofwat giving water companies a return on capital invested based on an assumed level of equity even if they do not hold that level of assumed equity.

Photo of Lord Douglas-Miller Lord Douglas-Miller The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs

When providing company determinations, Ofwat set a sector wide allowed return, on the basis of the notional capital structure. The notional capital structure provides clear signals about the allocation of risk. It protects customers from bearing much of the risk of companies' actual financing decisions and provides strong incentives on companies to raise finance efficiently. This approach is consistent with other UK sectors that are subject to regulatory price controls and is recommended by the UK Regulators’ Network.

The actual achieved equity return for any company will depend on the company's unique actual capital structure and company performance. Considerations about the actual capital structure are matters for each company and its investors to manage, consistent with the clear allocation of risk and responsibility for a company's actual financing and capital structure.

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