Specialist
Director at a leading water supply company
Agenda
- Overall investment needs of the UK regulated water utilities industry – storm overflows, retrofitting piping, new reservoirs, water treatment and data reporting
- Evolving regulation requirements of Ofwat (Water Services Regulation Authority) PR24-PR29 and EU directives
- UK regulated water utilities’ net zero carbon emissions plan and timeframe
- Key industry challenges ahead
Questions
1.
What does the plan look like for regulated water utilities in the way of investment needs over the next 10-15 years, regarding climate change, evolving standards and net zero targets?
2.
How long do you think it will take to achieve the targets and goals we discussed, given a not-so-favourable outlook on funding them, as you noted with the capital structures and the developments since privatisation decades ago?
3.
You mentioned the CAPEX split being across ageing infrastructure, new types of infrastructure, engineering and storm overflows. How much do you think CAPEX budgets will need to increase? How will the split between the maintenance CAPEX vs new requirement CAPEX evolve in absolute growth?
4.
You mentioned some of the technologies that will be implemented. What is the consultancy’s role in this?
5.
What do you think will happen with the sewage management situation, given it’s become such a hot political potato? Is there any chance that Ofwat [Water Services Regulation Authority] will have to allow water companies to invest and generate a return from this issue? Obviously, you’ve got the balancing of the water bills rising. Is it most prominent in that area?
6.
Is it an inevitability that the cash raised through equity would have to deleverage the balance sheet? Alternatively, could they not leave the gearings over the next 5-10 years and then use the equity raised to make the investment into water infrastructure and the needs?
7.
Is it inevitable that equity will need to be raised? If so, which types of water companies do you think will raise equity in the near term?
8.
Looking at Ofwat’s early-view allowed returns, have you considered the details on allowed returns being 3.3% in deflated terms? You’ve got return on equity being slightly lower than PR19 and return on debt slightly higher. Do you expect this increase to be in line with Ofgem? Is it correct that Ofwat’s early view is not in line with what you’re seeing from the industry?
9.
Do you think that the publicly listed companies could be forced to cut dividends in the next review or in the review after perhaps?
10.
Thames Water raised equity in July 2023, but it’s highly contingent. Investors said they would give GBP 750m, which is short of the GBP 1bn that was requested. Do you think we’ll see more situations and cash raising that is in line with this?
11.
Ofwat has faced criticism from a lot of angles, including the way in which it models costs of operating and what’s needed for investment. It has also been criticised for the way in which it forms the regulatory framework with the other regulatory bodies. Do you think there’s anything structural or fundamental that needs to change or may change soon about the regulatory framework?
12.
You mentioned there’s a discrepancy between European countries and the UK in terms of the investment renewal levels on their infrastructures. Do you think there are differences within the entire model that could be replicated in the UK from other nations?
13.
Are you positive on the potential impact of the Labour Party coming into power and what that would mean for the water industry in the UK?
14.
Do you think the attitudes and policies in the UK run the risk of scaring equity and debt investors off? Have there been significant movements in that direction?
15.
How do you see new regulation impacting the overall investment requirements? Besides Ofwat, there’s talk of the environmental standards and the European directives on drinking water. Are there any watershed movements approaching?
16.
Could there be some consolidation of the regulatory bodies at all?
17.
What’s your outlook for investors in the space and the overall challenges? Obviously, on the debt side it’s becoming more risk-prone, and perhaps on the equity side returns are restricted.
