Thames Water Utilities Finance PLC

In the draft determination, Ofwat has: Set the likely range of returns from the outcome delivery incentive package equal to a return on regulatory equity range of -3.27% to +0.53%. We view the skew toward the downside as material risk, given the below-average operating performance in the current asset management period (AMP); Updated the cost of capital to 2.1% (based on a 3% retail price index [RPI]), a reduction of 0.21% from the early guidance that was set out in the PR19 methodology; Cut average bills by 9.8% in real terms in the 2020-2025 period, compared with the company's proposed 2.4% reduction; Reduced Thames Water's total expenditure costs by 15.7% (around £1.73 billion) compared with the previous regulatory period; and

...The company faces a high regulatory reset risk following assessment by the U.K regulator. Thames Water Utilities Finance PLC (Thames Water) is in the U.K. Water Services Regulation Authority's (Ofwat's) "significant scrutiny" category, as part of Ofwat's initial assessment of the company's business plan for the 2019 price review (PR19). Ofwat believes that Thames Water's plan falls considerably short in terms of cost efficiency, resilience, and delivery track record. The regulator published a draft PR19 determination in July 2019, which is due to be finalized in December 2019. Thames Water has submitted its response to the draft determination, in which it disagrees with a number of elements in the regulator's proposed plan, including the costs of capital, total expenditure (totex) allowance, and several performance commitments. Thames Water also expressed its concern about the implications of the draft plan for the company, its customers, and other stakeholders, and has proposed alternative...

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