I'll hand over to Chris so we can get straight into questions.
Thank you, Lou. Good morning, everyone, and thank you for joining. The format today is the same as usual, so if you'd like to ask a question, please raise your hand. If you are feeling shy, please don't hesitate to send me an email or send me a question on Bloomberg, and I shall read it out. Okay, first up, we have James Brand. Please go ahead.
Hi, good morning. A couple of questions for me on the review. So firstly, we obviously had the proposals from Ofwat, or the consultation, I should say, on changes to how the ODI regime works with this kind of rebasing to zero of the median company. Could you just go through kind of what you made of that? Do you think that's a positive development? And how do you see things evolving generally in terms of kind of the ODI package? That's question number one. And the second one is, I think most people expect the Final Determinations to be substantively improved on the Draft Determinations, and particularly in three areas: on the ODIs, on CapEx, and on the cost of debt. But a lot of people, I think, in the investment community feel like the cost of equity is still too low.
To the extent that you can comment, do you think that Ofwat is kind of listening to your representations from the industry on the cost of equity?
I don't know whether to read that.
Or not.
No, sorry, I just.
Interruption.
Yeah, don't worry. Sorry. Just thanks, James. Look, first of all, nice to see you, James, and probably just a reminder for people for joining the call, if they can join in mute, that would be great, so I'll probably sort of answer that question overall, James, and then specifically ask Phil to pick up on the cost of equity point. I think as we stepped into the response in terms of the DD, Ofwat have made it very, very clear that they expect to see movement between the DD itself and the FD. The plans landed extremely well, both regionally and with customers, and we've seen really productive and constructive conversations with regulators through the process since we made that return in the summer.
I think what is really helpful is that Ofwat have also recognized, and I think they've been really clear, both with us as companies and you as a market, that there was work to be done on the ODI package itself. And you've seen the sort of outturn adjustment mechanism that they're actually proposing, and that sort of notion that there can be that movement against the median company. As part of our consultation response, we were sort of quite clear that while we welcomed that intervention, I was really keen that we actually saw that adjustment actually happening in year as opposed to waiting for the end of the five-year period. That's because I'd always liked to understand, as I'm sure you would, actually how we're performing and the ability to make interventions.
But I think what we can expect to see, and Ofwat have been really clear about, is their ability or their willingness to move based on that package that they presented in the summer. So I think that is one area where we will see real movement. I think the other thing that is also important is that Ofwat have been very clear, both in terms of Totex, the ODI mechanism, and the overall funding regime, that again, they expect to see movement between DD and FD. And the conversations that we've been having have been extremely constructive, as you would expect them to be, with the relationship and the reputation that UU has got in terms of working with its regulators. And therefore, we are very, very focused on the 19th of December and what it's going to reveal.
In terms of cost of equity specifically, because obviously, as we all are aware, there's been a lot of movements in the market, the reference window, as we know, was September. But I'll hand over to Phil to pick up on that cost of equity point specifically.
Yeah, morning, James. Nice to see you. Yeah, I guess your point about cost of debt first. I think obviously cost of debt much more able to be evidenced in the context of the market, and we can see that, and we can see that in the context of the representations that went back into Ofwat. So I think that's a much more transparent discussion to have around the cost of capital. To your point on the cost of equity, obviously it was very welcome that Ofwat moved up the cost of equity to 4.8% in the context of the Draft Determination. When we submitted our representations, we submitted our Frontier Economics report, but it was talking around a cost of equity of 5.65%. And I know others have similarly represented in a similar sort of way.
And I think it's probably quite interesting to draw a comparison to a number of utilities, water utilities, have issued debt in the September sort of October sort of period. And when you look at those sort of debt issues that have been raised, now they're typically raising with a coupon of around about 6.3%. So you look back at the cost of equity at 4.8, add on 2% for inflation, 6.8. There's not really much of an equity wedge between actually where people are raising debt and the allowed cost of equity. So I think all of that is really quite helpful anecdotal evidence to sort of inform the cost of equity. But I don't really have an inside track as to how Ofwat's going to move at this stage. So we'll just have to wait and see.
Thank you very much.
Thanks, James.
Okay, thanks, James, very much. Next up, we have Jenny Ping.
Hi, morning. Thanks very much. Two questions from me, please. Firstly, just on the January update or the beginning of the next year update, we normally find sort of second, third week of January being the timing post-regulatory review as to when you update sort of your outlook for the next AMP. Is that the type of time frame that you're looking at this time, or is it so complicated that we may be really looking into much later? And then secondly, just on the rating agencies' publications over the last two days, and this is one for Phil, how comfortable are you with slipping one notch down into Moody's from the A3 to Baa1 to be on par with some of the others, or is that A3 rating really imperative for you guys? Thanks.
Thanks, Jenny. So look, I think let's just, if we just sort of focus initially on that timeline, I think I am very clear that Ofwat are very focused on the 19th of December. So I often get questions, which is, do you think the 19th of December is going to move, Lou? I don't. I think people are very focused on actually wanting to get the Final Determination published. So as far as we're concerned, and all of the sort of mood music, if you like, that we're receiving is the 19th of December as a sort of locked-on date. Obviously, Jenny, I'm sat here at this minute until we sort of unpack what the overall determination looks like and the opportunity to get into the detail. I don't want to be held to a specific date.
I want to make sure that we've got the time to really understand, look at the package in the round, both the Totex, the ODIs, and the overall funding position, and before we sort of step out and make any view. What I would say is that we are clear that we want to do that sort of market update early 2025, and that's what we're heading for. But I am going to make sure that we take the time as a business to make sure that we understand it and we make the right decisions. Phil?
Okay, morning, Jenny. Yeah, just picking up on the credit ratings. I think a few points I'd probably start off with making. I think, as you know, we've got a very strong balance sheet. We have 60% debt to RCV and a fully funded pension scheme. And that really reflects the credit ratings we have today. And as you quite rightly say, we are rated one notch higher than our peer group companies. So that's reflecting that balance sheet strength that we have. It's important to recognize that what Moody's have announced is a negative outlook rather than a review for downgrade. So what does a negative outlook mean? That's highlighting potential headwinds that the company faces and is basically acting as a signal to say they need to understand how those headwinds play out in the fullness of time.
I guess it's probably not news to anybody on this call, but the obvious headwinds are the Draft Determination and how does that play through in the context of the ODI discussions that we've been having. We know that Ofwat are moving on ODIs, and there's been a lot of discussion around the ODI packages. Also on sort of enhancement to CapEx, et cetera. All of that is something that has been lots of representation and lots of discussion about. At this stage, all that's calling out is they need to understand how that lands and how that moves. I suppose to your point, lots of moving parts, but worst case, sort of a downgrade would bring us in line with our peer group companies as opposed to taking us to a different place.
So we're going to need to wait to see how all that plays through and understand what the package looks like.
Thank you.
Great. Thanks, Jenny. Okay, we've got Pavan Mahbubani. Please go ahead with your questions.
Thank you. And good morning, everyone. I have two questions, please. Firstly, Lou, it would be great to get your initial take on the government's review into the water sector that they announced. What do you think of the terms of reference and any timing on when the sector should receive clarity on the outcome? And my second question is on the recently announced accelerated investments into sewer overflows. Can you give some colour on where those investments are going? And I guess to what extent should we see those improvements coming through in the metrics or what sort of time frame? Thank you.
Great. Thanks, Pavan. And good morning. Look, so in terms of the commission, obviously, the government have stepped into the fact that they want to do a sort of review of the overall architecture of the water sector. And I think that is a review that everybody welcomes, United Utilities included. It's looking essentially at how does the regulation work, over what time frame, how can we ensure, more importantly, that the industry itself is set up for success. I think Sir Jon Cunliffe, who's been chosen to chair the review, is recognized as the right chair, and I think that's also important. The terms of reference are very clear. And I think what's great is the focus is on looking forward, not on looking backwards.
Actually, what are the things that can be done to ensure that the architecture of the system that we all operate in can be much more effective? Really engaging as part of the process. In fact, I'm seeing him tomorrow as part of that consultation. And I think what's also encouraging is the view is that he will get to recommendations by June. Because I think that was everybody's initial fear. Sometimes when you see these commissions, they can take years. It's not. It's very outcome focused. It's about future facing. And I think we will see the outcomes of that in June, which I think everybody will welcome. So last week, we talked about the additional activity that we were making in terms of combined sewer overflows.
As you know, here in the North West, we have a significant number of combined sewer overflows, a lot of rain, as you'll have heard me talking about this morning on the video, but we've got to adjust to that climate. We can't keep blaming the weather. More importantly, we've got to ensure that we're taking action, so last week, we talked about the sort of GBP 500 million program of accelerated investment, and most of that is things that you already know about, because if you remember, sort of 12 months ago, Ofwat gave us permission to get going on those 440 combined sewer overflows that I've put in the business plan, which are heavy infrastructure-based solutions. They gave us permission to get going on 150 of those, so we're already up and running those, and they're part of our AMP plan.
The best way to think about this, Pav, is if you think about the sort of overall sort of suite and structure of combined sewer overflows that we have here in the North West. 30% of them are already at the government's target of less than 10. We've got a further 20% that are here in terms of this delivery, in terms of this 440. What we've identified is additional solutions where they are more tactical interventions, modular solutions that we can do that will make an immediate benefit. We've identified 700 sites. There's a great video, actually, on our website that I'd really encourage you to have a look that shows some of the case studies of what we've been doing. Cartmel, which is up in the Lake District, is famous for three things.
The home of sticky toffee pudding, a great racecourse, but most importantly, it was our number one spiller in United Utilities, is where we've been deploying these tactical interventions, and what we've been able to do is reduce that from significantly spilling over 300 times to less than 10, so what's great is we've identified an opportunity where we can go further and faster to reduce spills, and that will be all helpful as part of our targets when we look at the ODI that we've specifically got on average spills, so I think the other point just to sort of land, because I do think it's important, is that tactical interventions we'll see as reduced spills, it may see us take 10, 20 off. We're still going to have to come back and do the heavy infrastructure build on those in AMP 9 and AMP 10.
But I think what's really important is that all stakeholders, whether that's regulators, politicians, others of the business, and you, shareholders, want us to go as fast as we can. And that's essentially what we're doing.
Thank you.
Great. Thank you.
Okay, terrific. Thanks, Pav. John, go ahead.
Thanks, Chris. Good morning, everybody. Thanks for taking my questions. I wanted to come back to the topic of Moody's who lowered their outlook to negative. I think one of the things that struck me is they've lowered your threshold to keep your A3 rating to 60% gearing at the water company level. Previously, they argued for 65%. I think it's probably fair to say, at least on my numbers, that getting to 60% across AMP 8 could be quite challenging. So I'd be really interested to know, are you kind of in a position to try and defend that A3 rating at all costs? Or would you at least consider moving to a lower rating? I'd also be interested to know, why do you think Moody's have decided to publish this now, considering we don't even have Final Determinations out in the public yet?
I'd also like to know, maybe Lou's opinion. Does Lou think that Ofwat is meeting its financeability obligation for the sector? Thank you.
Thanks, John. Do you want to pick up the first one, and I can pick up the point about Ofwat?
Yeah, of course. Morning, John. Yeah, so I think the positive coming out of the Moody's announcement sort of last night really is clarity around thresholds, as you say. So effectively, they have given clarity around the A3 threshold at 60% and the Baa1 threshold at 68%. So that's sort of helpful to understand where their thinking has moved to. Clearly, there's a lot of moving parts still, John, in the context of the overall settlement. I think the points you make are fair points in the context of the challenges that present. But there's still a lot of moving parts. We still need to understand where cost of capital is going to land and the cash flows that are going to flow into the business. And so that's something we'll have to look at in the round in the context of the overall determination when we get it.
So it's helpful to have visibility of their thinking now ahead of the Final Determination because at least we can now take stock of that and sort of factor that into our thinking as well. As for why now, I mean, I suppose they have been talking about this for a little while. So we had the Moody's conference back in October, and they were signalling at that point around the deterioration in the quality of the regulatory cash flows and the sort of the challenges that presented. At that point, they didn't put anything out around thresholds or ratio numbers, but it was clearly something that they had been reflecting on post the Draft Determination. So I think their move reflects their assessments of the quality of a regulatory cash flow environment at this point in time.
It's a more strategic sort of point rather than a tactical point. Hence, I guess that's the reason they put it out today rather than at the FD. The FD necessarily will just inform your ability to meet those ratios rather than whether they have got the ratios at the right level, I think, is how they're viewing things.
John, just the sort of second part to your question about do I think Ofwat's aware of its financeability obligations? I think they're well aware. I think one of the things that I think is really encouraging is that Ofwat have been very clear that they expect to be movement between the DD and FD, and not just on sort of Totex and the ODI mechanism, but on the funding mechanisms more broadly and the financeabilities of the plan. They are obviously going to be well aware of the action that's been taken by Moody's and S&P. I think we'd expect to see those things sort of reflected and updated as we head into December. So I think they are extremely mindful of the obligations that they have. We are all focused to see how that materializes on the 19th of December.
Okay, thank you for that.
Great. Thanks, John. Who do we have next? We have Mr. Nash. Please go ahead. Dom, I don't think we can hear you, mate.
There we go.
There we go.
There we go. Thank you for the presentation and the opportunity to ask questions. Just a couple again from me, please. First, can we go back to this ODI consultation that Ofwat put through about, what, six weeks before the Final Determination? As I understood it, you basically only had a choice of either accepting or rejecting it, and I wasn't aware that you have too much of an ability to put caveats and a consultative process around it. The question kind of then follows on from that is that in Ofgem and in the electricity industry, a relative ODI sort of rebase was widely thrown out. Everyone hated it, and the reason being is it clearly institutionalizes losers in the industry, and you're now basically running faster than anybody else rather than running faster than Ofwat.
And the question I've got on that then is that, do you think that actually this is good news for the sector to have the ODI relative rebase? I guess for you, you're going to probably benefit from this because you're going to be running faster than the sector. So you can see a look up. And then the follow-on question from that, and you mentioned it earlier as well, but I'll just bring into this one again, is there not a real risk that you're going to potentially end up with maybe not meeting the ODI targets year upon year upon year? And so the headlines are United Utilities failing to meet the ODIs. But of course, you're going to get this massive rebase up at some point when the industry gets rebased up.
But we don't see it as investors until potentially a shadow around in 2030 with the blind year sort of adjustment and the rest of it. So the question I've got for you is, do you actually think that this is kind of a bit late in the day now to be going through something which I think is quite profoundly important that you're two months before the FD? That's my first question. So apologies for that. And the second one is probably hopefully on the Water (Special Measures) Bill. Clearly, I think that's got what, over 100 adjustments on the bill now. I think we should get clarity on that by February. Is it going the right way? And are you concerned about the impact on your company and on particularly your senior team and whether or not it will help you attract and retain talent in your company?
Thank you.
Okay. Morning, Dom. Really lovely to see you. So look, in relation to ODIs, I think let's sort of just for a minute, I'm going to just reflect on sort of where we are from a UU perspective before I talk about the overall sort of architecture of how the new mechanism is going to work. Look, we were last October, so just gone last month, we were identified as the leading company in terms of contribution in terms of ODIs. And I think that reflects the hard work and the commitment of the entire team. And more importantly, we are very clear we've been working in relation to the improvements that we want to make and shadow reporting on those ODIs in the background so we're ready to go for AMP8. So where am I?
We're absolutely backing ourselves to deliver and to deliver strongly on ODIs as we head into the next regime. I think what is important, and I do take your point on board about if you're always comparing to the average, actually what you're there for is you end up with potentially either the same companies in the pack or a very sort of divisive picture. And actually, how does that help the overall narrative of the sector? And so I think that is a really, really important point. And I'm clear when I talk to anybody that actually any incentive regime needs to be really well balanced and give companies the opportunity to perform.
I think what is helpful, though. I think Ofwat themselves, and they've said this to the market, have identified that the regime that they put forward at the DD perhaps wasn't as balanced as it needed to be. And therefore, have been talking, and I'm expecting to see movement at final around actually, is it appropriate to have company-specific targets to look at specific regional variations? So I think we could see some of that in the pack. I was really clear that when I went back on the mechanism itself, and I think I mentioned this a little bit earlier on, a bit like you, I don't want a five-year mechanism that then adjusts in 2030 because actually you're just kicking that down the road. And we all want to understand how we're performing.
It might actually be 2035 that we get to see, isn't it? Because it'll actually be in AMP 9.
It's the true-up mechanism. We've represented really, really hard. I want an in-year true-up mechanism because without that, I can't sit here and drive organizational performance, drive the business in terms of where we need to go. We've had a track record of actually making investment quite strategically that's then enabled us to show those returns. I want to be able to continue to do that. I'm hopeful that that will be well received. I think there is a recognition that the package in the round needs to be much more balanced than it is. We're all focused on the 19th of December for that. In relation to the special measures bill, you're absolutely right. That's going through Royal Assent at the moment. It's currently in the House of Lords. It will be shortly moving into the House of Commons.
There are a number of features of that bill, and I suppose what I'd say about the team here at United Utilities is we're hugely committed to the plan that we've put in and what we need to deliver. I've brought in quite a lot of new capability in terms of our capital delivery and engineering, people change capability. I've just recruited a new Chief Operating Officer, Matt Hemmings, who's just joined from Openreach, and essentially, we are extremely committed to the task and the activity that we have in hand. We're going to have to see how that bill lands. We're going to have to see what that means, and as you know, these things can pick up a lot of amendments as they go through that process, but from a team perspective, I'm really pleased with the talent that I've been able to attract to UU.
We're extremely focused on what it is we need to deliver. More importantly, whatever that ODI regime ends up being, I think we've got the track record that demonstrates that we've delivered and we've delivered really well. Go back to number one company last year. More importantly, we are focused on driving that transformation and are backing ourselves to deliver as we go into AMP8.
Thank you.
Okay. Thank you, Dom. Mark Freshney.
Hey.
Yeah.
I've got two questions. Firstly, Phil, just coming back to the rating agencies. I mean, to be clear, both reports raise the bar just as Ofwat is about to make its final decisions. So presumably, from an exogenous viewpoint, the timing of these reports is probably one of the best things that's happened to the sector this year. Very bluntly, can you confirm that? That's my first question.
Okay. I'll pick the first question up first, and then I'll come back to the second question, Mark. So yeah, I mean, obviously, both S&P and Moody's have made a sort of change and issued their updates effectively. I think, as I said before, the Moody's position has been a little while coming because obviously, they put out a sort of a credit piece in line with their conference back in October. So sort of in some respects, no surprises there at the sort of direction of travel in terms of the conclusions they were reaching. I guess the new information was the thresholds and the ratios. But what it is really highlighting is really the importance of the cash flows coming through the regulatory settlement. And so we all can understand that now.
It's easier to plan, better to plan, having clarity about position going into the Final Determination than post-Final D etermination.
Perfect. And technically, my question for you, Lou, I mean, it's clear that if there's a further uplift in bills for the final versus the draft, I think the draft, the number touted was about GBP 94 across the industry real over the five years. The industry has asked for 175. I'm not sure you're going to get a doubling of the rise. But I mean, clearly, that does have a knock-on impact on consumers. And I know that that was a huge focus or it still is a huge focus for you, Lou. I mean, do you need extra measures in the final to deal with the in terms of support for vulnerable households to deal with the extra increase for them?
Morning, Mark. I suppose in terms of the sort of plan overall, I think sort of if we go back to the package that we put forward, we had over 74% of support from customers for the plan that we actually submitted, and I think that's a really positive and encouraging place to start, and at the same time, we put down the biggest and most comprehensive affordability suite, so the ability to help one in six customers with affordability and just over GBP 500 million worth of support. I feel really well placed to sort of respond, if you like, to the bill increases that customers are seeing. I think what is also important is that Ofwat were actually out last week. They've done an assessment of affordability and vulnerability, and again, we scored that top-placed position.
And I think we consistently perform well, not just across the water sector because that isn't where we should be benchmarking, but in that affordability and vulnerability support more broadly. That said, Mark, if you look at the actual bill and where it's positioned compared to others, we sit mid-pack. So if you look at the sort of percentage increase that we're seeing, United Utilities is not at the extremes. And that's despite the fact that we've got one of the biggest Totex and enhancements. And that's because a lot of these interventions, as we know, are big CapEx solutions with multi-years of depreciation. That said, and I think it's a cracking question, so I'm really pleased you've asked me, Mark, is I do think with the new government, there is a real sense that there needs to be much more focus on a national social tariff.
As you know, that's something that United Utilities has really campaigned for. And I've been really pushing for in the background. And I have a number of consultations and meetings currently with both regulators and government around that national social tariff and what it can look like. So I think what we are seeing is a move from government to actually step into that space. So if you think about that as additionality to what we've already got baked in, I think we're really, really well placed to manage that bill transition for customers as we move forward. And I think just to emphasize the quantum of what we're talking about, it's about a GBP 1.50 increase per month. That's what we're expecting. Now, I'm not trivializing that, particularly for customers in the demographics we've got here in the North West. But it's that proportion and that scale.
So with the base package we already have, the GBP 500 million and the one in six we can already support and the opportunity of a social tariff, I think we can manage through that.
But I mean, that's kind of at odds with what the government announced through the BBC and taking away a GBP 50 million subsidy for the South West, right? On the one hand, talking about social tariffs, on the other hand, taking away something that a local community had grown into over 12 years. It's a big negative sign, right? I find that hard to tally with improvements on national social tariff.
I'd come back to Mark. The whole point is it needs to be a national social tariff. I don't think we should have a postcode lottery. We shouldn't see support happening in one part of the region at the detriment of everybody else. I think what's really important, and I think what the government have been very, very clear about, is they want eligibility and they want support to actually be consistent right across where you reside. Actually, I think that's something that we wholeheartedly support here in the North West. We have the highest levels of deprivation, but we didn't have a GBP 50 cross subsidy. Yes, they have taken it away, but it's in the context of looking at how can that more broadly sort of support a national social tariff.
I think you'll see a much countrywide scheme as opposed to something specific that was just focused in the South West.
Thank you, Lou. Very interesting, as always.
Thanks, Mark.
Yes, thank you, Mark. Next up, Sarah Lester.
Thank you very much. Good morning, Lou. Morning, Phil.
Hi, Sarah.
Question, please, on Totex outperformance going forward. I feel like you get a sense these days of underspending. It's a bit of a dirty word. And so does this kind of set companies up to not want to outperform or risk that being misconstrued as underspending? So twofold question here. Does Ofwat actually recognize that this context now exists? And then how do you think about Totex outperformance going forward within this context as well?
Morning, Sarah. Great question. So look, I think in that notion of Totex outperformance, look, we run an asset-heavy infrastructure business. So the sort of sheer notion of sort of setting out with that in mind, I don't think is the right mindset. But what is absolutely the right mindset is ensuring that you are delivering and you are doing so efficiently. What was great is in the plan that we put forward, we had baked in a series of efficiencies that, again, we are confident of delivering. Ofwat assessed our base cost as efficient. And in fact, actually, we're the only company that came out as efficient on that cost curve. And again, I think that is really encouraging on the back of all of the transformation that we've been driving with digital, with AI, with predictive maintenance, et cetera. So I think that's a really encouraging place to be.
So for me, setting into a Totex plan that is a significant increase like we've seen, it's about how do we deliver that efficiently and, more importantly, ensure that we're maximizing the returns that come from that. And so whether that is accelerating delivery that potentially sits in further ramps, looking at additional ODI performance in terms of how can we accelerate returns from that perspective. But what's really important, whether that's regulators or customers, they want us to spend their money wisely. And I think it's absolutely incumbent on us all to do that. So it's about making sure that we're enabling the business to be as efficient and as effective as it possibly can be, as opposed to, well, let's start off with a mindset that says, we're going to underspend. No, let's spend every pound really, really wisely.
Make sure we're delivering on our legal obligations and we're maximizing those ODI returns. That's exactly what you'd want us to do. Thanks, Sarah.
Good stuff. Lucky last. No, not lucky last anymore. Thanks to Mr. Nash. I'm going over to you.
Okay. All right. Thank you for taking my questions. Lou, a couple for you and then maybe one for you, Phil. You've obviously made sort of quite a sort of comments today where you have sort of indicated you are expecting an improvement. I was just hoping if you could give us a little bit more detail off the points that you raised in your response on ODIs and Totex, where you have had the most engagement from Ofwat, specifically on the ODIs. I'll be interested to get a little bit more color on that. Then in your video, you make a point about how, despite heavy rainfall, you've had no serious pollution incidents in the first half. I'm just quite intrigued to learn a little bit more about it.
Is that something more structural? Is there something we should expect going forward on an ongoing basis? Just trying to understand if there's something operationally different, is there going to be more resiliency on that measure? And maybe, Phil, sorry to come back to this again, but if you are downgraded by one notch, can you just help us sort of understand the cost implications? Is there something on debt spreads? Is there anything else that you can help us understand a little bit more? Thank you.
Great. Morning. It's nice to see you. So look, I think in terms of the things that we represented on, there were sort of five key factors. There was Totex, ODIs, and financing more broadly. And then we talked specifically about gated mechanisms and projects progressing through the gated mechanisms and just on some sort of specific measures that we sort of pulled together, if you like, on items such as business rates and factors such as that. I think there was a consistency. So when you looked across all of the companies and their representations, Totex, ODIs, and financing were the three that were absolutely consistent for everybody. I think what's been really, really good is that Ofwat have really engaged with a lot of the data and information that we've provided.
We went back with 2,500 pages of content in terms of the enhancement cases that we'd put through, detailed case studies. And we've had some really encouraging conversations about both the detail of what we've provided, but also the scope of the solutions that we've put forward. And if you remember, when we actually submitted the plan way back in October, we talked about this notion of an adaptive plan and the fact that actually there were different options that could be taken that we thought were probably better for customers in the long run. And that notion, if you remember me talking at the time, was, look, we're going in and doing a solution only to then turn up in AMP 9. So there is optionality, if you like, of the package of things that we put forward.
Really encouraging conversations that we've been having as part of that activity. And I think Ofwat were really clear that they invited companies to provide additional evidence, and that's essentially what we've been doing. In relation to ODIs, as well as the sort of outturn adjustment mechanism that Dominic referenced, I think the other area of conversation that's been happening is about sort of the start point for measures and also those sort of specific regional variations. And we've got a couple. And again, it is linked back to rainfall, but our infrastructure more broadly, which is around internal sewer flooding. And that is one for us with the level of rainfall and combined sewers where we have specific challenges compared to the rest of the industry.
So despite the fact that we've made a significant improvement, one of the biggest improvements in the sector, we have still got additional change that we need to drive. So again, I'm expecting that when they come out in December, that we will hopefully see some movement in those areas. Your point about pollutions is a really good one. We've got to make sure that we are adjusting to the climate we're operating in. We can't just keep sitting here going, well, it's rained a lot and there's been lots of storms. Now it has. We've had the wettest 18 months on record. We've got more named storms than we know what to do with. But actually, that climate pattern, as we all know, is changing. A lot of our pollutions are storm-driven.
I think I said this morning in the video, 25% are caused by issues with energy resilience. And here in the North West, we're actually not on a loop system in terms of energy resilience at all. So we have a lot of issues where we lose energy and lose connectivity, and essentially that's it. So we've got a program where we're absolutely on strategic areas, increasing that energy resilience, that battery backup storage, so we can make sure that we're not seeing that level of exposure. And so that's about us driving additional resilience because it is not there in the base sort of energy infrastructure that we need for the North West. So that's specifically the point that we're referencing there.
But I also think this is about how do we cope with storms more broadly and therefore our focus on how do we make sure that we are removing stormwater out of the network and out of the system to make sure that as we have to adjust to these impacts of climate, we've got that capacity. So that's the real focus that we've been driving along with the AI that I spoke to you about this morning on the video. So those sensors that are in the network that allow us to proactively see what's going on and take early intervention before a pollution happens.
Morning, Ahmed. Just picking up your last question on the credit ratings, I guess. You can see the credit curves for you and comparable companies, one notch lower in the water space. You can see those are sort of probably 10-20 basis points difference in terms of that ratings differential impact. I think it's probably fair to say that clearly over the last six months, other more macro factors around the regulatory environment and the political environment is what's been driving credit spreads more broadly as well. We had the question earlier on from James around the cost of equity. It's not just equity investors who are asking about the cost of equity. Credit investors are similarly very focused on the cost of equity because that's a leading indicator for the attractiveness of the sector to support the sector going forward.
And so they want to see the right settlement in that context as well because it plays through to their determination of credit spreads and the riskiness of the sector more broadly. So I think really the more macro factors are what's driving the cost of debt at this point in the cycle.
Thank you.
Okay. Thank you very much, Ahmed Farman. Before we go to Mr. Nash, hold your horses. A question from the audience. And they're more sector-driven, I think, Phil, but why not pick your brains while we've got you here on the hook? In terms of the rating agency commentary, while FD is important, is perhaps the more worrying thing the talk of the reassessment of risks in the sector?
And to paraphrase the question, depending on how the credit rating agencies do revise or tighten ratings, are you worried that an assessment of sector risks will bring a downgrade even if there's a positive movement in the FD? That's the first question, Phil. And a second, even broader question would be if the sector risk assessment is changed, then Ofwat's financeability tests will be perhaps against the wrong metrics. And is the Triple B negative outlook, do you think, the right level? And could there be a danger that many water companies may not be able to pay dividends?
Okay. Where to start, Chris? A big shopping list of questions there. So I think just picking up the first one in the context of a structural framework for ratings.
I mean, I think Moody's, as I said, put out that announcement back in October that talked about how they evaluate the framework, and the conclusion of what they announced yesterday is effectively the regulatory risk has been downgraded from, in 2018, it was Triple A. They downgraded it to Double A in 2018. They downgraded it to Single A effectively in the recent announcements, so that's their assessment of the regulatory framework and the quality of the regulatory cash flows flowing into the water sector, so that's their starting point for the assessment. That's something that has now happened. That won't change in the context of the Final Determination as such, and as John was flagging earlier, the sort of revised metrics flowing out of that is something that Moody's have published effectively in the context of their updates last night, so that's how that's flowed through.
In the context of the determination, the determination clearly will sort of determine how much cash is flowing into the businesses, and the amount of cash flowing into the businesses will then impact their ability to sort of meet the various targets that the rating agencies are looking at. I think it is really important to stress that I think the sort of S&P position is very, very anchored around cash flows, operating cash flows. That's what really matters to S&P in contrast to Moody's, so Moody's and Fitch are very balance sheet focused, very much focused on debt to equity, onto debt to RCV, whereas the S&P position is all around the cash flow position.
So I think where we land on cost of capital, we were talking earlier about ODIs and the end of five-year true up, having the earnings from those ODIs flowing regularly, all those things will be very important to the agencies to be able to see the cash flows coming into the business on a timely basis because ultimately that's what's going to help drive the rating.
Terrific. Thank you, Phil. Okay. Mr. Nash, I think it's you. And Ahmed, you've still got your hand up, but we'll come to you next if you are still keen to ask s ome questions. So Dominic, over to you.
Hi there. Yeah. Thank you for the opportunity to ask again, although I don't think you really got much choice for other stuff. But anyway, two questions for me. One of them is on contagion risk.
Have you seen or could you quantify what you think the impact is on the increase of your cost of debt based on what you're seeing? And I think you alluded to the answer to, I think, Ahmed's question that clearly in the last six months, there were bigger macro things going on, but you've got a sector-specific issue going on. And where do you sit relative to the iBoxx indexes? The follow-on question from that then is, could you just remind me again how this reverse halo effect will kick in that when you end up with your remuneration, when your cost of debt calculations, if the sector's cost of debt is higher than the indexes? Could you just give me an update on that? And then, sorry, I was actually going to do two questions, but that morphed into two questions and same question.
Could you just give me an update again? How's your negotiations going with, or how's your data gathering with Ofwat on the investigations into your CSOs going? When do we expect a response from Ofwat, please?
Okay. All right. So Phil, if you want to pick up the first question, and I'll follow up on the second. I think before we get into sort of the technicalities and the specifics, I think as part of a sector, yes, there is the sector has found itself absolutely under the spotlight. But I think it is also remembering that there are lots of different actors. We're in a really robust position. If you look at our overall gearing position, it's 60%. We're well funded, as Phil said, GBP 2.6 billion worth of liquidity that goes into FY 2027.
We are in a very, very different position, notwithstanding the points that you make, though, about there is a contagion effect, particularly when it is somebody that is providing services at the heart of the city. But I do think it is just important to remember that we are very, very different in the way that we're placed. But, Phil?
Yeah. Morning, Dominic again. I guess just a few things. I mean, I think, as you know, we have a very robust set of financial policies in terms of how we manage financial policy risk around the business. That's no different today than when we were in the financial crisis in 2007. And so, as you can see, we've got a very significant amount of liquidity, recognizing the fact that we've got a CapEx programme to fund going out into the future.
So today, we're funded into FY 2027 with GBP 2.6 billion of liquidity. We actually issued further debt post the financial close for the half year. That's not in those numbers as well. So effectively, a very strong liquidity position. In terms of the overall impact, I mean, you can see the credit curves for all the companies. I know Barclays do put out a lot of information on that. So probably better able to sort of talk to those. But I think when you look at it, you can see the sort of Thames position. And when you look at some of the more high leveraged sort of privately owned companies are also being impacted. And then the listed companies a little less. But it is impacting all of us to an extent. You asked about the sort of the halo effect.
I think it was welcome to see the 15 basis points drop in the context of the halo effect at the Draft Determination on the debt index. There was also a need to make quite substantive representation on the sort of use of the general iBoxx sort of corporate index because that really isn't representative of where utilities are raising money. We suggested in our representations that Ofwat really needs to focus in on the utility index, recognizing all the capital that all utilities are now having to raise. I mean, effectively, the water industry is having its own version of sort of net zero climate change sort of funding requirements. All of that is putting a strain on the need for capital for all utilities. That's the right way of looking at it.
And then I guess the sort of recent events have probably put that under more strain as well. So there's probably some gap from the utilities index. That utilities index is probably 50 or 60 basis points higher than the iBoxx index. And I would say the sort of public debt issues of some of the more highly leveraged companies in September were sort of north of that again by sort of tens of basis points. So effectively, all that's very transparent. It's all very clear. Ofwat has all that data and information. So I think a big expectation that that will be factored into the review process.
And I suppose the last part of your question, Dominic, was about the Ofwat investigation. So obviously, we received the information request from Ofwat. There was us, Severn Trent, and Welsh Water.
So we were the sort of last three, if you like, as part of that process. Data that they requested in terms of information that went back over a couple of years. Ofwat have now received that. They're reviewing that and processing. I think it's fair to say, look, it's still at its very early stages. We'll keep you updated once we know more. I think, like you, we're hoping for a speedy outcome in relation to that investigation. But everything has been returned and provided to them that they've asked for, and they're now working through that detail.
Okay. Thank you, Betsy.
Okay. Thank you, John. I think that just about does it. I don't think we have any more questions from online, and looks like the hands are all down. So thank you all very much for joining. And Lou, would you like to make any closing remarks?
Yeah. No, thanks, Chris. Look, thank you so much for your time this morning. Obviously, we're going to be out and about over the next couple of weeks. But thank you. We're all focused on the 19th of December in terms of the Final Determination. As soon as we've understood that, we will obviously be out to the market with our view and an update. But thanks so much for your time this morning. And look forward to talking to you once we've got the clarity of the Final Determination. Thanks so much as well.