MCC Economics, on behalf of the Consumer Council for Water (CCW), has reviewed Ofwat’s PR24 final WACC determination to assess whether it fairly balances customer and investor interests. The report questions Ofwat’s decision to include costs stemming from companies with high financial gearing, arguing this may shift undue risk to customers. By applying a market-based, notional-efficient approach, MCC finds the WACC could have been set 1.08% lower — potentially saving customers £5.4 billion, or £41 per household, over five years. The review also highlights how new risk-reduction mechanisms in PR24 could justify a lower return, offering critical insight for both policymakers and the Competition and Markets Authority.
MCC Economics was commissioned by the Consumer Council for Water (CCW) to review Ofwat’s PR24 final WACC determination. The report examines whether Ofwat’s approach appropriately balances customer interests against investor requirements. It identifies potential upward bias in key components — including the cost of equity and debt — largely influenced by financial behaviours of highly geared companies. MCC proposes a market-led recalibration of the WACC that aligns with the notional efficient company and regulatory best practice. This would reduce the WACC by 1.08%, potentially saving customers £5.4 billion over five years. The report also assesses risk protection measures introduced in PR24 and offers recommendations for future regulatory frameworks and CMA deliberations.
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