Question to the Department for Environment, Food and Rural Affairs:

To ask His Majesty's Government why Ofwat did not use actual gearing levels of water companies in its calculation of weighted average cost of capital for the 2024 pricing review.

In all of Ofwat's price determinations since privatisation, Ofwat has set the allowed return by reference to a notional capital structure. Ofwat uses a notional capital structure as it protects customers from bearing the risk of companies' actual financing decisions and it sets a signal to companies and investors on regulatory expectations about the allocation of risk within the capital structure. The use of the notional structure means it is companies and investors, rather than customers, that bear the risks of their capital and financing choices where the financing arrangements depart from the notional structure.