UK water regulator has issued a warning to water companies about the potential of overstating energy costs in their forthcoming business plans for the 2025-2030 period.

This move comes after several companies requested alterations to the PR24 base cost models, citing the need to factor in the escalating wholesale energy prices.

In a letter sent on 11th August, Ofwat addressed the issue of energy cost forecasts in PR24.

The regulator has asked the companies to send additional information regarding energy prices and consumption, as part of their submissions for the PR24 business plans.

Water companies argue that Ofwat’s PR24 base cost models fail to adequately account for recent surges in energy costs.

They recommend a comprehensive industry-wide adjustment to the base cost models to reflect the present energy pricing landscape.

While energy costs constitute approximately 10% of water company expenditures, wholesale energy prices have witnessed substantial increases over recent years, surpassing the rate of general inflation.

Electricity prices experienced an average annual increase of 27% over the two-year period leading up to March 2023, outpacing the Consumer Prices Index.