River Action UK, R (on the application of) v Water Services Regulation Authority

A regulator that adopts a policy must generally act consistently with it, but judicial review does not require the court to substitute its own view of how the policy should be applied. The question is whether the decision was reasonably open to the regulator and had a sufficient logical basis.

In distinguishing base expenditure from enhancement expenditure, a regulator may use hydraulic modelling where the modelling incorporates actual performance data and uses a design basis that assumes compliance with existing permit requirements. It need not require proof of perfect real-world compliance before allowing funding for enhancements directed at new legal or performance requirements.

Ofwat set expenditure allowances and performance conditions for water and sewerage undertakers for 2025–2030 under its PR24 process. River Action UK challenged the conditions attached to enhancement funding for storm overflow works.

The principal ground alleged inconsistency with Ofwat’s policy that customers should not pay twice, on the basis that enhancement funding might finance work required to restore compliance with existing permits or legal duties. A separate challenge to proposed clawback arrangements was withdrawn as premature because the detailed arrangements had not yet been finalised.

The central issue was whether Ofwat had acted unlawfully by accepting hydraulic simulation modelling as evidence that enhancement funding was directed beyond existing permit compliance.

1. Claim dismissed. The court accepted that, having adopted a policy that customers should not pay twice, Ofwat would act unlawfully if it departed from that policy without good reason.
2. The applicable review remained orthodox judicial review. The court could ask only whether Ofwat’s conclusion was reasonably open to it. In this context, where the policy involved a judgment across a spectrum rather than a hard-edged rule, the relevant question was whether there was a sufficient logical basis for the conclusion reached.
3. Permit compliance was not synonymous with a spill-free sewerage system. A permitted overflow may operate once the relevant forward-flow threshold is exceeded, and a spill may result from a temporary equipment failure rather than inadequate asset capacity. Compliance with existing permits was also conceptually distinct from upgrading assets to meet new legal standards.
4. Ofwat was entitled to rely on hydraulic modelling. The process began with actual performance data and verification against recorded storms. It then produced an “as is” model and a “basis of design” model, removing temporary operational impairments that should be addressed through base expenditure. The latter model inherently assumed operation in accordance with permit requirements.
5. Additional safeguards, including evidence supplied during applications, conformity with the relevant professional Code of Practice, and independent verification of the price control deliverable, reinforced the logical connection between the modelling requirement and the policy against double payment.
6. The requirement that evidence “must … include, but may not be limited to” hydraulic simulation modelling of asset operation before and after enhancement was therefore legally permissible. The judicial review claim failed and was dismissed.