Ofwat has launched a consultation on its response to Portsmouth Water’s request for funding of £370.4 million of totex for the period 2020-2030, an increase of £235.1 million on the £123.6 million funding allowed in final determinations in PR19, for the Havant Thicket Winter Storage Reservoir.

Image: Havant Thicket construction timeline

Following planning permission for the project being granted, as well as procuring the contracts for the main reservoir works and infill pipeline, Portsmouth Water's estimate of total project costs has increased to £370.4 million (in November 2021 prices).

Commenting in the consultation paper setting out its response to the water company, Ofwat said:

“This is a very considerable increase in costs. However, Portsmouth Water and Southern Water have both confirmed that the project continues to remain the best value for money solution for the provision of future water resources in Hampshire. In addition, it is recognised that at PR19, the project was at an early stage of development and that there was significant uncertainty about the costs.”

The Havant Thicket Reservoir is an 8,700Ml reservoir identified by Portsmouth Water and Southern Water as the preferred option to meet Southern Water's supply demand deficit, which has arisen as a result of a sizeable reduction on the amount Southern Water is permitted to abstract from the rivers Test and Itchen.

At PR19, Portsmouth Water requested funding to deliver:

• An 8,700 Ml earth bund reservoir
• An infill pipeline from Bedhampton Springs to the reservoir
• Network enhancements to support the increased supply into Portsmouth Water's network

The reservoir is expected to be operational in 2029 and will enable Portsmouth Water to make a bulk transfer of water to Southern Water under the terms of a Bulk Supply Agreement entered into between Portsmouth Water and Southern Water in January 2021.

Southern Water have entered into a bulk supply agreement with Portsmouth Water to pay for the construction and operation of the reservoir. This means that Southern Water’s customers are paying for the project, and therefore the allowed revenues for the Havant Thicket Price Control are zero for Portsmouth’s customers.

At PR19 the regulator committed to undertake a mid-point determination of the price control in 2024 to take into account the outcome of the cost adjustment mechanism. This will in turn enable the charges in the bulk supply agreement between Portsmouth Water and Southern Water to be adjusted to reflect Ofwat’s view of allowable totex.

Ofwat’s view of allowable costs is lower than Portsmouth Water's view of costs set out in its application. Following an assessment of the application, Ofwat’s view of costs is put at between £334.7million and £340.1million in November 2021 prices (or between £306.0 million and £310.9 million in 2017/18 prices). This represents between an 8.2% and 9.6% efficiency challenge to the water company's application.

Ofwat’s view of costs has been accepted by Portsmouth Water, with the exception of £5.4 million of costs associated with the existing enabling works contract and future compensation events. According to the regulator “there is some uncertainty around them” and Ofwat will expect Portsmouth Water to provide further evidence to substantiate them.

The consultation paper says that the overall increase has been driven by increased costs as a result of planning conditions, the development of the design, higher risk pricing, as well as procurement processes resulting in higher construction costs than previously expected.

“Portsmouth Water considers the increase in construction costs has largely been driven by external events impacting the construction market including: current macro-economic conditions such as the pandemic and the war in Ukraine impacting inflation; the market appetite for projects; and a changing attitude to how construction companies approach and price risk”, the paper states.

“Although the decision on the cost adjustment mechanism will only be implemented in 2024, providing a decision now will give Portsmouth Water certainty as to the level of totex it has been allowed and can recover through the bulk supply agreement. This will support the financing of the project.”

Deadline for all interested stakeholders to submit responses to Ofwat’s draft decision via email to This e-mail address is being protected from spambots. You need JavaScript enabled to view it is close of business on 6 January 2023.

Ofwat will then consider the consultation responses before making its final decision in early 2023.

Click here to download the consultation document in full