Whittaker found the allowance “fell materially short of what investors required… by between 3.1 and 4.3 percentage points” only in the 1999 Price Review (PR99), he states in the report. “After that, it’s been fairly generous,” he says. […]

According to the report: “From PR04 onwards, no shortfall is robust across specifications. At PR09 and PR14, the allowance exceeds the implied return by 0.86 and 2.5 percentage points, with the direction unchanged across 15 combinations of growth convention and estimator composition.” […]

“From the early 2000s, a series of acquisitions and whole-business securitisations transformed the financing of the sector. These transactions increased leverage at several companies and produced capital structures that diverged substantially from Ofwat’s notional benchmark.” […]

“They played it a little bit fast and loose, in terms of being able to pull out as much capital as they could,” he tells Infrastructure Investor, referring to the companies that found themselves in financial distress. “The rules allowed it and so they left a big mess for everyone else to clean up.”

“[Ofwat] should be more embedded within the utility and understand what is actually happening in terms of the capital structure; they should be more proactive.”