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15 September 2025
Steve Gummer and Allan Owen, Partners in Sharpe Pritchard’s Infrastructure Department are the authors of the case summary for the Cunliffe Report’s latest findings.
It is easy to get lost in headlines about regulators being abolished and water company profiteering. However, the Independent Water Commission’s final report, chaired by Sir Jon Cunliffe and published on 21 July 2025, sets out the most ambitious overhaul of the UK water sector since privatisation. With 88 formal recommendations, the Cunliffe Report outlines a ‘total reset’ across regulation, company ownership, system planning, environmental obligations, and investment frameworks.
Sharpe Pritchard lawyers are already advising clients on the implications of these recommendations. Contact us if you’d like to discuss
As lawyers advising clients in infrastructure, utilities, ESG finance, and regulated sectors, it is critical we understand the implications of this (really no pun intended!) watershed document. This commentary focuses on certain of the report’s headline proposals, in particular those relating to:
Reform of the CMA’s role in setting the water sector WACC (cost of capital methodology)
Changes to company ownership and control rules
The creation of regional water system planners
Evolution of Direct Procurement for Customers (DPC) and SIPR frameworks
Legal, regulatory, and policy tensions for investors and the state
The following is an excerpt from the Case Summary, which you can read in full HERE.
A unified WACC methodology could provide standardisation across industries and reduce regulatory volatility. Investors could gain more confidence that returns are set by an independent body using transparent criteria, rather than being subject to differing approaches or political pressure in each sector. This consistency is seen as vital for attracting long-term infrastructure investment.
A cross-sector approach means the water regulator might lose some flexibility to tailor returns to water-specific circumstances. For instance, unique water industry risks, such as heavy environmental compliance costs or the financial fragility of certain companies, may not be fully reflected if the same WACC formula is imposed uniformly. There is a concern that what works for energy or telecoms might not perfectly fit water, potentially constraining Ofwat’s ability to incentivise investment in areas like pollution control or network resilience. There is a tension here as Cunliffe focuses on a need not just to be sector-specific but company-specific in setting prices. This will need to be considered closely.
Crucially, the report reaffirms the importance of maintaining the existing five-year price control framework (AMP cycles), which underpins regulatory discipline, customer engagement, and benchmarking. However, investment planning and return expectations are to be extended over longer time horizons, that is, 10, 15 and even 25 years, to give greater confidence to investors funding long-term infrastructure. This hybrid model aims to combine regulatory accountability at five-year intervals with the forward visibility needed for capital planning, especially where projects span multiple AMP periods. Any CMA-led WACC methodology would need to be compatible with this structure, offering both periodic adaptability and durable baseline assumptions that support multi-decade
investment models.
Handing WACC methodology to the CMA would likely require statutory amendments and careful coordination among regulators. The price review processes in water, energy and telecoms have different cycles and legal frameworks; a CMA-led approach would have to be reconciled with each to avoid any constitutional or practical conflicts. Legislators would need to clearly delineate the CMA’s remit and ensure that sector regulators and the CMA work in tandem (for example, the CMA providing the methodology and each regulator applying it with sector-specific data). This move would essentially formalise the collaborative efforts already underway to align WACC-setting practices across sectors.
The recommendations flag some of the key changes beyond the headlines and some of the challenges and tensions that may arise. Publication of Cunliffe is not the end of the discussion. While Cunliffe rightly flags a change in the way the water sector is to be regulated, it raises as many questions and challenges as it does answers, and this article tries to look beyond the headlines to what comes next.
This article was written for the Journal of Water Law. Download the PDF for the full article.
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