Our response to Ofwat’s Cost Change Draft Determinations for 2026
CCW welcomes the opportunity to respond to Ofwat’s proposed additional cost allowances and associated customer bill adjustments for 2027-30.
Summary
CCW recognise the need for a mechanism that enables necessary investment where costs could not be determined with sufficient certainty at PR24. There is a strong case for much of the investment Ofwat proposes to allow in its draft determinations. However, the cost change mechanism should not weaken the discipline of the five-year price review or make further customer bill increases routine.
Consumer trust in the water sector is at an all time low. Every regulatory intervention, including these cost change determinations, should therefore be treated as an opportunity to demonstrate fairness, strengthen accountability, and rebuild trust by showing customers clearly what they are paying for and what they will receive in return.
For customers, the most important distinction is between investment being approved and customers being required to pay for it immediately. CCW’s research on the acceptability and affordability of Ofwat’s PR24 draft determinations shows why this distinction matters. Although 75% of customers initially found the proposed package of investment and service improvements acceptable, this fell to 58% when they were reminded of the associated bill increases. Two in five customers (40%) said the proposed future bills would be difficult to afford. This shows that, although customers recognise the need for investment, their support falls when the effect on bills is made clear. Ofwat should therefore minimise additional in-period bill increases wherever possible and require compelling evidence where companies propose them.
CCW’s Water Voice consumer panels reinforce this point. The May 2026 affordability research (pdf) found that rising bills, unclear spending, and a lack of visible improvement are important pressures on perceptions of value for money and fairness. Panel members were most accepting of bill increases that were clearly linked to maintaining safe drinking water and a reliable supply. They repeatedly called for clearer explanations of where their money is going and what results investment is delivering. These findings are indicative rather than statistically representative, but they strengthen the case for transparent, outcome-based reporting alongside any additional funding.
This is particularly important against a backdrop of low consumer trust and high volumes of customer complaints, which increase the need for Ofwat and companies to demonstrate that any further funding is fair, necessary and delivers visible value for customers.
The exceptional determination requiring particular scrutiny is Southern Water, where the proposed £43 additional average bill impact in 2027-28 raises a significant affordability concern. Ofwat should only confirm this increased bill impact after demonstrating that the timing is necessary and that alternative funding profiles would materially compromise delivery.
Across all companies, if customers are being asked for additional money beyond the PR24 settlement, they should be able to see what additional benefit they will receive, when they will receive it, and how their money will be protected if the company fails to deliver.
Deferring additional cost allowances is also not cost free. It shifts recovery towards future customers and increases companies’ Regulated Capital Value (RCV). Ofwat should therefore demonstrate that its chosen funding profile strikes a fair balance between affordability today and fairness to future customers.
For every company receiving an additional allowance, Ofwat’s final determination should provide a simple explanation for household and non-household customers to show:
- how much additional expenditure has been allowed
- when customers will pay
- what additional outcomes they will receive
- how much funding will be returned if the company does not deliver
CCW supports Ofwat’s principle that the generality of customers should not bear costs driven primarily by data centre or other identifiable commercial demand3. This principle is especially important where investment is being brought forward for a small number of large users and where future demand is uncertain.
While we comment below on each company’s cost change determination, section 4 sets out the expectations that Ofwat should apply consistently across all companies before reaching its final determinations.
3 “Investment in site-specific connections for data centres is outside the scope of price controls as revenue is recovered from the third-party” (Ofwat cost change draft determinations)
Comments on company cost change determinations
CCW supports Ofwat not increasing Anglian customers’ bills during 2025-30 through this determination. This decision protects current customers from another bill pressure while allowing necessary investment to proceed.
Ofwat’s decision not to provide Anglian Water with in-period revenue protects current customers but transfers recovery of the approved expenditure to future customers through the RCV. This can be fair where long-lived assets provide benefits across generations, but only if future customers receive demonstrable benefits from the investment, particularly sufficient capacity to accommodate growth and improved asset condition and resilience. Ofwat should also ensure that growth expenditure is appropriately attributed so existing and future customers do not subsidise costs that should properly be recovered from developers or other third parties.
Ofwat proposes £0.84 million of additional asset-health expenditure. Dŵr Cymru did not request in-period funding and Ofwat proposes no additional RCV adjustment at 2030. Ofwat’s proposal therefore means that customers should receive the specified asset health improvements without either an additional cost-change increase to bills during 2025-30 or deferred recovery through the RCV at 2030.
Ofwat proposes £0.032 million of additional asset-health expenditure. Hafren Dyfrdwy did not request in-period funding and there is no proposed RCV addition. Ofwat’s proposal therefore means that customers should receive the specified asset health improvement without either an additional cost-change increase to bills during 2025-30 or deferred recovery through the RCV at 2030.
Ofwat proposes £444 million of additional expenditure for Northumbrian Water, including £241.6 million for asset health and £202.4 million for large gated schemes, with £431.8 million recognised in RCV at 2030. Northumbrian withdrew its request for in-period funding, citing both its delivery profile and cost of living pressures.
CCW welcomes that decision. It means customers avoid an additional cost change related increase during 2025-30. It also illustrates an important principle: companies should demonstrate that they are delivering what customers are already paying for before asking customers to provide additional funding early.
Customers will nevertheless ultimately fund this investment in the long term. In return they should see improved asset condition and the long-term resilience benefits associated with the large gated schemes. Ofwat should continue to test Northumbrian’s delivery performance before agreeing any renewed request for in-period funding in a future cost change round.
Ofwat proposes £313.4 million of additional expenditure, predominantly asset health, and £51.3 million of in-period revenue. Ofwat estimates this would add approximately £3 to the average bill in 2027-28 and £5 in 2029-30 compared with PR24.
The bill impact is relatively modest, but it still needs justification given the wider increase customers are already facing. In return, customers should see tangible improvements in asset condition and reduced risks of asset failure.
CCW supports Ofwat applying the proposed asset health clawback. Severn Trent should not receive additional customer funding while underspending the base maintenance allowance customers are already providing.
Ofwat proposes £179.9 million of additional expenditure, mainly £169.6 million for asset health, but no in-period revenue. It also rejects South West Water’s £12.5 million cyber claim because the requirements and evidence are currently too uncertain.
CCW supports Ofwat’s cautious approach. Customers should not fund speculative expenditure before the need and efficient solution are established. Similarly, given the existing pressure on South West Water customers’ bills, we support Ofwat in not bringing the asset health funding forward.
Future customers will ultimately fund the approved investment through the £167.9 million RCV addition. They should therefore receive measurable improvements to asset condition and resilience, backed by incentivised Price Control Deliverables
(PCDs) and the proposed protection against customers paying twice.
Ofwat should also make clear whether the costs and benefits of these additional allowances fall differently across South West Water’s different customer areas, including the Bristol Water area. The overall £179.9m allowance does not currently
tell Bristol Water customers how the costs are allocated. This needs to be explained so Bristol Water customers can explicitly see what they are paying for and what they will receive in return.
Southern Water is the most significant determination from an immediate affordability perspective. Ofwat proposes £687.6 million of additional expenditure and £162 million of in-period revenue. This includes major projects, large gated schemes, asset health and Havant Thicket. The estimated additional average bill impact is £43 in 2027-28 and £37 in 2029-30.
This is a considerable additional financial burden. CCW recognises that much of the in-period funding relates to significant projects and statutory requirements where delaying funding could impede delivery. However, the scale of the bill impact
requires a considerably stronger affordability test than for the other companies.
Before final determination, Ofwat should demonstrate that the proposed timing of recovery is necessary, rather than merely desirable from a financing perspective. It should test whether any expenditure can be reprofiled without compromising delivery and assess the £43 increase alongside Southern Water’s overall expected bill, inflation, ODIs and other adjustments.
Customers should receive clear outcomes in return: improved treatment work resilience, progress on strategic water resource infrastructure and other specific outputs attached to the gated and major projects. Ofwat and Southern Water should make these outcomes visible to customers and ensure that funding is recovered where milestones or outputs are not delivered.
Ofwat proposes £301.2 million of additional expenditure, dominated by £294.1 million of major project development costs, and £63.9 million of in-period revenue. The estimated additional average bill impact is £3 in 2027-28 and £5 in 2029-30.
Given Thames Water’s circumstances and the substantial bill increases its customers are already facing, Ofwat should apply particularly rigorous scrutiny to any additional customer funding.
CCW recognises that the funding primarily supports major project development, including Teddington Direct River Abstraction and the White Horse Reservoir. Importantly, unused major project development funding will be returned to customers in full at the end of 2025-30. We strongly support this protection.
This does not mean the proposed £5 increase in the average bill in 2029-30 is automatically cancelled: that increase reflects the in-period revenue Ofwat proposes to allow. Any unused development funding should instead be reconciled and returned to customers through the relevant end-of-period adjustment. Ofwat should explain clearly when and how customers would see any such repayment.
Customers should receive demonstrable progress towards the water resource resilience these projects are intended to provide. They should not bear development expenditure indefinitely if projects do not progress or costs cease to be necessary.
Ofwat proposes £715.9 million of additional expenditure, the largest company allowance, including £305.7 million for asset health, £298.7 million for growth and £111.5 million for large gated schemes. United Utilities did not request in-period revenue, so there is no immediate bill increase from this determination, but £668.4 million would ultimately be added to RCV.
CCW supports avoiding an additional immediate bill increase. However, the size of the eventual RCV addition means there is a significant future customer liability. Ofwat should therefore ensure that customers receive substantial and measurable benefits, including better asset resilience and environmental outcomes.
Ofwat proposes £80.3 million of additional expenditure and £9.9 million of in-period revenue. The estimated additional average bill impact is £4 in 2027-28 and £7 in 2029-30. The investment includes asset health and PFAS treatment.
Customers should receive clear benefits in return, particularly protection of drinking water quality and improved asset resilience. Ofwat should nevertheless consider the cumulative affordability impact before confirming the proposed funding profile.
PFAS expenditure should be closely linked to defined outputs and regulatory requirements so customers fund only necessary and efficient treatment.
Ofwat proposes £27.2 million of additional asset-health expenditure. Yorkshire Water did not request in-period funding, so customers face no additional cost-change bill impact during 2025-30, with £25.3 million proposed to be recognised in RCV at 2030.
CCW supports this approach. In return for the eventual additional funding, customers should see identifiable improvements in asset health, with full clawback protection where expenditure is not delivered.
Ofwat proposes £19.3 million of additional expenditure, including growth and PFAS investment, and £1.5 million of in-period revenue. Ofwat’s published bill impact table shows no increase when rounded to the nearest pound in 2027-28 and an increase of £1 in 2029-30. We therefore suggest describing the impact as no material increase in 2027-28, rising to around £1 by 2029-30, rather than saying it is ‘less than £1 every year’.
The immediate affordability impact is small, but this should not reduce the evidential threshold. In particular, Ofwat says South East Water’s growth submission did not fully meet its evidential requirements and proposes conditional funding for short-term schemes.
CCW supports conditional rather than unconditional funding. Ofwat should not confirm the allowance until the evidence gaps are addressed. Customers should receive improved water supply resilience to support growth and protection from PFAS, with funding directly linked to delivery.
Ofwat proposes £10.3 million of additional asset-health expenditure but no in-period revenue, with £9.9 million added to the RCV at 2030.
CCW supports Ofwat not increasing current bills through this determination. Future recovery should remain conditional on customers receiving the promised asset-health outputs, with the same protection against customers paying twice that applies elsewhere.
South Staffs Water and Affinity Water did not submit cost change requests in 2026. For customers, this means no additional bill impacts. Customers should therefore expect both companies to deliver the service, asset health and resilience outcomes already funded in their PR24 final determinations, without needing additional funding.
Portsmouth Water did not submit a claim in the 2026 cost change process, but the costs and customer protections associated with the Havant Thicket reservoir are being considered separately through its own specific cost adjustment process. We will consider the customer implications of that decision separately, when available.
What we want Ofwat to do
For its final determinations, CCW wants Ofwat to:
- Keep end-of-period funding as the default. Companies should receive in-period revenue only where Ofwat is satisfied that earlier customer funding is genuinely necessary for efficient and timely delivery.
- Apply a cumulative affordability test. Assess the cost change impact alongside PR24/CMA increases, forecast inflation, projected ODIs and other adjustments so decisions reflect the bill customers will actually receive.
- Re-examine Southern Water’s proposed bill impact particularly closely. Ofwat should demonstrate why a £43 additional average increase in 2027-28 is necessary and whether any element can be reprofiled without harming delivery.
- Test fairness between current and future customers. For material adjustments, Ofwat should explicitly consider and explain who pays, who benefits and when those benefits arise.
- Make additional funding conditional on additional outcomes. Every material allowance should have measurable deliverables, deadlines and effective clawback arrangements.
- Retain the protection against customers paying twice for asset health and consider whether equivalent protections are required wherever new allowances potentially overlap existing funding.
- Require companies to demonstrate delivery before receiving additional funding early. Companies materially behind on their existing PR24 programmes should face a particularly high threshold.
- Protect customers from third-party costs. Developers, data centres, and other identifiable commercial beneficiaries should meet costs properly attributable to them.
- Publish a customer facing company-by-company statement with the final determinations, directed to both domestic and business customers, showing the additional bill impact during 2025-30, the costs deferred beyond 2030, what customers will receive for the money and the protection that applies if the company does not deliver.