Water industry hits back at Ofwat over price determinations
Two more water companies have referred Ofwat to the Competition and Markets Authority (CMA) today over its five-year financial plan for the sector, after Yorkshire Water did so on Monday.
Both Anglian and Northumbrian Water have referred the regulator’s price determinations, with the latter claiming that the plan runs “contrary to the long term best interests of customers and doesn’t provide for sustainable investment going forward”.
Anglian’s chief executive Peter Simpson said: “As we do not believe the Final Determination enables us to meet these needs, we are making use of the next step in the regulatory process and asking the CMA to consider if the right balance has been struck between bill reductions and investment”.
Kip Meek, CMA inquiry group chair said, “Everyone needs water, so it’s really important that customers’ bills are not set too high, but at the same time the water companies have enough money to deliver an efficient and high-quality service.
“The CMA will look closely at whether Ofwat’s decision strikes the right balance in this and other areas and will make changes if not.”
Ofwat’s latest financial plan would see companies forced to cut their debt and reduce bills for customers by an average of £50 from April.
Last week it was announced that bills for households will be cut around £17 this year as the new price controls come into effect.
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The move is widely seen as an attempt to take on an industry which has come under fire for paying large dividends despite mounting debt, increasing household bills, and being responsible for instances of serious pollution.
The plan would also see companies invest a combined £51bn over the next five years to reduce pollution and leaks.
On Monday Yorkshire Water’s chief executive Liz Barber said the plan meant companies would be “forced to focus on short term performance at the expense of longer term capital investment”.
Although it was widely expected that most of the water industry would challenge Ofwat’s plans, both Thames Water and South West Water – which is owned by Pennon – accepted the determinations.
In a statement, Thames Water said that although the settlement was “most challenging” and would not allow for “essential resilience upgrades”, a “CMA referral would lead to significant management distraction at a time when the company is seeing improvements in customer service and leakage reduction”.
Rachel Fletcher, Ofwat’s chief executive, said that the regulator was “ready to fully engage with the CMA”:
“This price review lays down a major challenge for the sector to transform: introducing a demanding set of new performance targets backed by investment for the future, including £13bn dedicated for the environment and future generations. This is the greenest price review ever.
“We have been clear that shareholders’ rewards will only be earned through a new standard of operational excellence. Some investors have accepted this scale of ambition and change, but others need to face up to the new reality.