Moody's Investors Service is warning that Ofwat’s Draft Determinations for the water companies in England and Wales AMP8 Business Plans increases the risk that sector returns may not be enough to attract the equity funding the companies need to support increasing investment.
Ofwat published its Draft Determinations (DDs) on 11 July 2024 imposing tough cost and performance targets on the water companies operating in England and Wales for the five-year period starting 1 April 2025.
Moody’s says the DDs are in response to public and political concerns over water companies' performance and service levels, particularly concerning wastewater treatment.
However, according to the ratings agency, the draft also increases the risk that sector returns may not be enough to attract the equity funding the companies need to support increasing investment.
“If the draft is adopted unchanged we could lower our view of the regulatory framework's stability, predictability and supportiveness,” Moody’s goes on to warn.
Based on the draft determination (and if companies perform in line with their business plan assumptions), Moody’s estimate that most companies are likely to incur net penalties over the next five years, amounting to around £2 billion in aggregate across the sector.
Click here for more information about Moody's Investors Service Report - Regulated Water Utilities – UK: Ofwat's draft determination increases sector risk
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