The stability and predictability of water company regulation in the UK by the Water Services Regulation Authority ('Ofwat'), which is mandated to ensure value for the end consumer, has been a major contributor to attracting private investment into the sector. Since privatisation in 1989, this stable regulatory framework has enabled sector companies to attract over £108 billion of investment.
Investors in the UK regulated water industry look for visibility and predictability of earnings growth, based on remuneration against each Company's Regulatory Asset Value ('RAV'). The RAV comprises the capital assets of the Company which evolve in each review period by factors prescribed by Ofwat for capital expenditure, depreciation and outperformance of historic targets, all of which are inflated by UK retail price inflation.
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