Northern Ireland Water's price control review set to revisit K-factor as costs bite

Northern Ireland Water is likely to seek a review of K-factors as a consequence of significant financial pressures including power cost increases, the Utility Regulator (UR) said as it published details of how it will approach the mid-term review of PC21, which runs from 2021-27.

The UR said the company would need to inform it of the scope of any proposed changes at the start of June, with a full submission by September so the regulator can determine K factors by December in time for the 2024-25 scheme of charges.

Regarding power costs, UR said these are expected to be three times higher in 2023-4; to date higher costs have been met by additional subsidy from government and therefore have not impacted tariffs but this approach “may not be sustainable moving forward”.

Among other cost pressures Northern Ireland Water is facing are the following:

• Significant cost increases compared to the "holding" estimates included in the final determination for projects that needed further research. Northern Ireland Water will provide a revised list of prioritised and costed outputs which UR will assess to establish what can be delivered in the PC21 price control period within the capex funding allowance.

• Above inflation cost pressures on construction and base maintenance works – Northern Ireland Water will submit evidence for assessment and consideration how this might be dealt with.

Regarding enhancement expenditure, UR noted: “In addition, in line with previously established principles, it is anticipated that drinking water investment will be prioritised within the process. Any output reductions due to cost pressures are therefore expected to mainly affect wastewater investment and more specifically the Unsatisfactory Intermittent Discharge (UID) programme.”