PR19 appeals – Ofwat rejects CMA proposals and warns water customers could pay more

Ofwat has warned that customers will pay more on their water bills and investors could scoop up the extra as higher dividend pay-outs if the Competition and Markets Authority confirms its position on the price review appeals by four water companies.  The water sector regulator has rejected the CMA’s Provisional Findings on the appeals, accusing it of “fundamental errors of approach.”

Ofwat has today published a detailed 33 page document in response to the Competition and Markets Authority provisional Findings in the appeals by Anglian Water, Bristol Water, Northumbrian Water and Yorkshire Water against Ofwat’s Final Determinations on their AMP7 Business Plans.

Commenting on the response, Ofwat said:

“Taken together, the CMA’s package of proposals threatens to undermine Ofwat’s ability to regulate in customers’ interests, and cause wider uncertainty for customers and investors in other regulated industries.”

In December last year, Ofwat set out what water companies should deliver for customers and the environment, and the price customers will pay over the next five years, commenting:

“ In doing so, (we) demanded big improvements from water companies and most of them accepted the challenge and have been working hard to meet it. However four companies …didn’t – and they referred our decisions to the Competition and Markets Authority.”

In its response to the CMA’s consultation, the regulator has acknowledged there are many areas of agreement, but also identified a number of areas which it said would leave customers worse off, for example:

• The CMA are proposing higher bills, but this is not focused on paying for better services or environmental protection. Instead, this extra money could simply flow straight to investors, as the CMA’s proposals would increase their returns by about 20%. The unusual nature of this decision is underlined by the fact that the CMA are proposing to give investors even higher returns than the companies asked for.
• The CMA has recognised that Ofwat is right to be concerned about the risk to customers if water companies take on high levels of debt. Despite that, it is proposing to strike out the mechanism Ofwat imposed to tackle this, without putting in place any alternative. This could undermine financial resilience and place a higher risk on customers from potential company failure.
• The CMA proposes that Yorkshire Water’s customers pay an extra £93 million to reduce leakage to the level many other water companies already comfortably achieve without additional funding from customers.

Click here to download Ofwat’s response in full: Reference of the PR19 final determinations: Fundamental errors of approach – response to CMA provisional findings

Click here to watch a full video of Ofwat Chief Executive, Rachel Fletcher commenting on the CMA’s Provisional Findings.