Ofwat says that emerging Water Resources Management Plans plans being developed by five regional groups are proposing a step change in investment and that they should therefore “think carefully about the deliverability of the plans” from a practical perspective, including current supply chain constraints and affordability concerns.

The comments come in the water sector regulator's responses to the current consultations by the water resources regional groups on the emerging plans.

This is the first time five regional plans have been developed that cover the whole of England and with important links into Wales for the West group. According to Ofwat, the plans are important because they represent an opportunity to meet water needs at a regional and national scale “more efficiently than would be possible through individual aggregated water company plans.”

John Russell, Senior Director at Ofwat, has written to the following groups setting out the regulator’s overarching comments on the plans, together with separately addressing Ofwat’s views on specification aspects of the individual plans:

• Water Resources East (WRE)
• West Country Water Resources (WCWR)
• Water Resources West (WRW)
• Water Resources North (WReN)

The regulator has yet to publish its response to Water Resources South East's emerging plan. 

The Ofwat team has reviewed each emerging regional plan for consultation focusing on:

• assessment of water needs
• options to meet water needs
• decision making and prioritisation
• ambition and outcomes
• stakeholder engagement

Ofwat’s response to each group covers a range of common cross cutting themes and more detailed comments that are specific to each individual group.

The introduction to each letter says:

“At this time there is very limited information available on option costs, benefits or tradeoffs, which has constrained our ability to review the plans in detail. We will require access to this information at the next stage of the process in autumn.”

Ofwat expects the regional plans to shape the company water resources management plans (WRMPs) - which will then form part of the companies’ business plans for investment beyond 2025 submitted to Ofwat as part of the upcoming PR24 price review.

Cross-cutting issues for the regional groups raised by Ofwat include:

• The data available on options has not allowed us to look at costing at this stage. The options where companies seek funding at the business plan stage should have all known environmental and drinking water quality risks identified and mitigations costed.
• We are expecting significant effort on demand management and want to see glide paths backed up by commensurate water company actions.
• While the regions are generally proposing to meet requirements around drought resilience, personal consumption, and leakage, we've not yet seen enough focus on profiling those changes to optimise outcomes.
• Further work is needed to fully understand and prioritise changes required to water abstraction.
• Some of the plans include insufficient options in comparison to the projected needs – this situation risks making all available options seem low regret as they tend to be selected widely in the modelling.

Plans are proposing a step change in investment 

Ofwat has also told all the groups that the plans are proposing a step change in investment and that they should therefore “think carefully about the deliverability of the plans” from a practical perspective, including current supply chain constraints and affordability concerns. The regulator also wants them to ensure that the proposed solutions are adaptable and that “smaller scale options aren't discounted in favour of larger solutions.”

In addition, Ofwat says the regions should also be considering supply options to facilitate transfers to neighbouring regions where this could represent the best value approach.

However, while the regulator has also welcomed the fact that the regional plans show some evidence of cross-sector collaboration, Ofwat is also cautioning that water customers should only be expected to fund solutions “consistent with the proper carrying out of the functions of a water company.”

The expectation is that third parties who would benefit from the solution should contribute a fair share of costs according to their own responsibilities and the benefits they realise.

Timescales for improvements to be made to the regional plans are tight

Ofwat is also warning that timescales for the improvements to be made to the regional plans are tight, meaning that regional groups will have to prioritise their work carefully to make the necessary improvements by the next consultation.

Comments on individual groups’ cover a range of issues specific to their own plan and water resources, including:

WRE – Ofwat says that the potential reductions to abstraction licences in the plan as very large ( up to 1,325 Ml/d). However, while WRE has used the Environment Agency scenarios, it is not clear how the scenarios have been tested against local evidence. “Given the scale of the scenarios and how they dominate the plan this work requires urgent prioritisation” Ofwat says.

The regulator also points out that the WRE plan shows 1,820 Ml/d capacity is available from new solutions with the regional challenge to 2050 coming in between 703 and 2,267 Ml/d – but WRE has not identified or presented sufficient options to meet the upper predicted need for water in 2050.

Ofwat’s response says:

“This is exacerbated by a significant proportion of the options available being reliant on advances in

desalination technology that is unproven in the UK…… Given the scale of the challenge that WRE identifies, the number and range of options it is considering is very limited. For example, there are no licence trading options or options to make better use of existing resources / increase connectivity within the region or to transfer water into the region.”

WCWR – has come a long way in the relatively short time it has been in place. However, the response says that despite the rapid progress, WCWR’s emerging plan is “not yet as sophisticated as we would expect given the challenges the region now faces” and “methodologies have not yet caught up with the rapidly changing understanding of water resources in the region.”

WRW - one of the newer regional groups. The response says it has made significant progress since its formation and Ofwat is “encouraged by the quality of outputs WRW has produced at this stage” and “pleased that WRW seems to be looking at a wide range of options.”

However, “companies within WRW have taken quite different approaches to estimating the changes which creates inconsistency within the region.”

The response says:

“Our understanding is that United Utilities has included 50% of the Environment Agency's enhanced scenario in its baseline whereas South Staffordshire Water and Severn Trent Water have only included changes that have already been investigated and confirmed. Welsh Water has included one additional uncertain abstraction change. This inconsistency raises risks around comparability of the planning problem across the region.”

"United Utilities has committed to working with the Environment Agency this year to understand what investigations are required to understand which changes to abstraction are needed by when. The other companies in WRW should also commit to doing this."

WReN - not projected to face the level of water scarcity that groups covering the South East of England are and also has fewer water companies to coordinate across. According to Ofwat, the plan therefore does not need to be as sophisticated in its approach to decision making as some other groups. ”

The response says WReN is one of the newer groups and Ofwat is “encouraged that the plan is developing in the right direction.” However, Ofwat continues:

“We note that transfers from WReN have not been selected by other groups. We would like more transfer options to be developed to test this fully and to evidence that robust decision-making has been undertaken around the option choices available to other regions.”

“Of the 27 options put forward, most are new sources. There are no options on treatment works improvements, effluent reuse, licence transfers or catchment schemes that may be more sustainable or better value. WreN should develop a wider range of options to give greater confidence that the options selected represent the best value portfolio. This should include reservoir optimisation schemes.”

Strategic planning frameworks - water companies need clear strategies for delivery into the long term

In November 2021 Ofwat set out its expectations for strategic planning frameworks, saying that to deliver the ambitions of the next price review, PR24, and the targets that need to be achieved by 2050, the water companies need clear strategies for delivery into the long term. The regulator expects company AMP8 business plans for 2025-30 to be set in this context.

In addition to water resources management plans (WRMPs), the water companies’ long-term strategic planning frameworks also include drainage and wastewater management plans (DWMPs), the water industry national environment programme (WINEP) in England and the national environment programme (NEP) in Wales.

Together, the frameworks set the long-term direction of travel for key areas of company activities and usually involve collaboration with other regulators and stakeholders.

In 2019 Ofwat set up the Regulators’ Alliance for Progressing Infrastructure Development (RAPID) with the Environment Agency and Drinking Water Inspectorate to help facilitate the development and funding of new large scale strategic water supply options by the water companies.

Click here to download Ofwat’s response to WRE’s emerging plan

Click here to download Ofwat’s response to WCWR’s emerging plan

Click here to download Ofwat’s response to WRW’s emerging plan

Click here to download Ofwat’s response to WReN’s emerging plan