Ofwat is the UK regulator of the water industry. The industry has a strong natural monopoly and provides something that is clearly a necessity, so it has become even more tightly regulated than other utilities.

From an investor's point of view, the most important aspect of Ofwat's work is its regulation of prices. These are set for periods of several years at a time, and there is a period of consultation before they are set. This usually includes a preliminary determination, well before a final decision is made.

This means that water company's revenues are very predictable. Ofwat's regulation also aims to give each water companies a reasonable return on the assets invested in the regulated part of its business. This means that, unless either Ofwat or a water company gets things badly wrong, the regulated parts of water companies are very low risk.

The companies may (and often do) also have other, higher risk, businesses, but it is generally a very safe sector.

There is more information, including details of Ofwat's regulatory mechanisms and information on individual water companies on the Ofwat website.

Copyright Graeme Pietersz © 2005-2016