Fitch Ratings says it sees moderately higher business risk in AMP8, mainly driven by heightened exposure to environmental risk, increasing public scrutiny, and higher clawback risk, which is linked to the price control deliverables (PCDs) mechanism.

However, the ratings agency believes that Ofwat’s Final Determinations in December 2024 provided a reasonable outcome for most UK water companies, especially compared with the draft determination.

Fitch says further uncertainties could also arise from the Cunliffe review, the most significant regulatory reform since privatisation.

The sector also faces a heightened risk of fines related to operational and environmental under-performance, and what it describes as “a pressing need” to rebuild trust with the public, government, and regulatory bodies.

At the same time, Fitch would expect the sector to enhance its assets to accommodate population growth and extreme weather conditions.

Fitch has revised the sector's debt capacity for AMP8, leading to a 2% reduction in net debt/ regulatory capital value (RCV) and a 0.1x increase in cash and nominal post-maintenance interest coverage ratios (PMICRs).