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

To ask His Majesty's Government what is their assessment of Ofwat giving water companies a return on capital invested based on an assumed level of equity even if they do not hold that level of assumed equity.

When providing company determinations, Ofwat set a sector wide allowed return, on the basis of the notional capital structure. The notional capital structure provides clear signals about the allocation of risk. It protects customers from bearing much of the risk of companies' actual financing decisions and provides strong incentives on companies to raise finance efficiently. This approach is consistent with other UK sectors that are subject to regulatory price controls and is recommended by the UK Regulators’ Network.

The actual achieved equity return for any company will depend on the company's unique actual capital structure and company performance. Considerations about the actual capital structure are matters for each company and its investors to manage, consistent with the clear allocation of risk and responsibility for a company's actual financing and capital structure.