A recently-published report by S&P Global Ratings claims that U.K.-based water utilities may face lower returns after 2020. This came after elements of industry regulator Ofwat’s methodology for its upcoming Price Review emerged.
To compensate for utilities’ lower takings, the regulator is proposing attractive performance-based financial incentives. While this increased scope for earnings from incentives may offset reduced revenues, there may be increased cash flow pressure on the less efficient water companies.
S&P Global Ratings’ lead analyst, Tania Tsoneva, added: “Penalties for inefficient operators are likely to be materially higher than in the current period, and potentially unlimited, thus increasing downside risk for their cash flow.”