Ofwat has written to wastewater company chief executives saying that more work is needed on their draft Drainage and Wastewater Management Plans (DWMPs) submitted to the regulator in June, including further development of their proposals for reducing combined sewer overflow (CSO) discharges.

Outlining Ofwat’s overview and feedback on the DWMPs in the letter, Aileen Armstrong, Senior Director, Company Performance And Price Reviews said that while Ofwat appreciated “the effort that has gone into the development of the first set of DWMPs”, it had several concerns.

She told the CEOs:

“While there are several areas of good practice across individual companies ……we have identified key common areas of concern from our assessment that companies will need to address to convince us that their plans are in the best interests of customers. “

Ofwat’s concerns broadly fall into the following four areas:

1. Company plans on storm overflows are lacking

Ofwat says all or part of the UK government's storm overflow targets have not been included in the DWMPs for English water companies. All English water companies need to address Defra's storm overflow reduction plan targets in their final DWMPs and should clearly set out how they will achieve, or exceed, them along with the costs and associated benefits to the environment and society.

In Wales, company plans lack evidence that the right options are being proposed to reduce the harm from storm overflow spills.

2. Insufficient evidence to support the investment needs and inadequate development of costs and benefits of solutions, particularly for schemes with multiple benefits.

This includes the impact on affordability and bills, but with particular focus on those priorities that will be put forward for PR24 investment. At this stage in the planning process, Ofwat expects companies to have a more detailed understanding of the likely scale and pace of investment requirements across the 25-year planning horizon, and therefore be able to be clear on what best value, least regret solutions are likely to be put forward for PR24. The regulator does not yet have confidence that plans will deliver the best solutions out of all feasible options.

3. A lack of ambition in prioritising improvements from base expenditure, and prioritising nature-based solutions or surface water separation options

Some companies' plans consider improvements in asset health, management and optimisation as key in a hierarchy of solutions to reduce risks and provide initial hydraulic headroom in the system, whereas other plans are clear that base expenditure activities are separate considerations.

Ofwat considers that base activities that maintain and improve asset health and performance are essential to meet, and continue to meet, legal obligations and must form part of a company's long-term strategy and should be factored into the mix of options for addressing future resilience risks.

The regulator is also concerned that companies have not been able to satisfactorily prioritise green/nature-based and low carbon solutions such as surface water removal or separation, where feasible.

Ofwat expects to see sufficient and convincing evidence in plans as to why certain solutions were less favourable than others, particularly where traditional, grey solutions, such as storage tanks, have been prioritised over green solutions.

Nature-based solutions should be robustly considered, where appropriate, when determining the best long-term value, but Ofwat has not seen satisfactory evidence presented that companies have fully explored such options or provided compelling evidence for discounting them.

4.A lack of focus and maturity in partnership solutions

Ofwat is concerned that companies have not maximised opportunities to engage and work with other risk management authorities with responsibilities for drainage, to fully explore partnership schemes that could offer best long-term value.

Some potential partnership opportunities have been identified by companies, but these are not yet sufficiently well-defined to provide confidence that they will be prioritised above alternative options and be successfully pursued. Ofwat had expected companies to present clearer evidence for the viability of third-party collaborations by this stage in the planning process.

"Critical that DWMPs provide an appropriate evidence base for PR24 investment requirements" 

Ofwat says it is critical that the current cycle of DWMPs provides an appropriate evidence base for PR24 investment requirements and expects the DWMPs to provide the rationale and evidence for the long-term wastewater delivery strategies requested by Ofwat as part of the PR24 submission. “In this way DWMPs would help to provide the evidence base for PR24 investment proposals, avoiding the need for companies to develop separate additional submissions to justify their PR24 investment proposals”, the letter says.

Aileen Armstrong went on to explain that Ofwat now expects each company to address its comments and feedback in their final DWMPs, saying this was likely to “require considerable work” on finalising the plan. In order to allow companies to address feedback and develop a robust evidence base, Ofwat is proposing to allow them, on request, an extension to the submission of their final DWMP from March 2023 to the end of May 2023.