Ofwat is warning that shareholders’ rewards for investors in the water sector “will only be earned through a new standard of operational excellence” and that investors “need to face up to the new reality.”
Ofwat is warning that shareholders’ rewards for investors in the water sector “will only be earned through a new standard of operational excellence” and that investors “need to face up to the new reality.”
The warning comes in a statement issued by the water sector regulator last Friday, the deadline for the water companies to either accept Ofwat’s Final Determination on their individual AMP7 Business Plans or opt instead for a referral to the Competition and Markets Authority.
Commenting on the outcome of the PR19 price review, Rachel Fletcher, Chief Executive of Ofwat, said:
“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.
“Companies must become more efficient, and step up to deliver better services, lower bills and secure long-term resilience.
“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.
“We are ready to fully engage with the CMA, setting out our analysis and why we are confident this is the right settlement for customers, the environment, and companies.”
The £51 billion PR19 spending package for the next five years, which delivers an average reduction in bills of about £50 before inflation, sets new levels of service for the water companies, including:
- Cutting leakage by 16% – saving enough water to meet the needs of everyone in Birmingham, Bristol, Cardiff, Leeds, Liverpool and Sheffield
- Identifying and helping an additional two million customers who need extra support
- Investing over £1 billion to protect communities at risk of flooding
- Reducing pollution into rivers and streams by almost a third
- Preparing for drier weather by providing £450 million to explore new water resources such as reservoirs or moving water from where there is lots to places with less
Anglian Water, Bristol Water, Northumbrian Water and Yorkshire Water have all rejected Ofwat’s Final Determination opting instead for a referral to the Competition and Markets Authority.
CMA "will look closely at whether Ofwat’s decision strikes the right balance"
The CMA’s role is to form its own conclusion on the price controls for the individual companies that appeal. When carrying out the review, the CMA has the same duties as Ofwat.
An Inquiry Group of independent panel members will be appointed to review Ofwat’s price determination decision, supported by a team of staff within the CMA. The CMA expects Ofwat to give it 6 months from the date of the reference to complete its review, although this can be extended if the CMA needs more time.
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 will now refer the price control for each water company that has appealed. Once the reference is made, further information will be available on the CMA website. At the end of the review, the CMA will publish a report with its final decision on Ofwat’s price controls including any changes that it deems necessary.
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