Ofwat has made a submission to the Competition and Markets Authority (CMA) after four of the 17 water companies appealed to the CMA against the outcome of Ofwat’s recent price review.
The price review sets the outcomes water companies should deliver for customers and the environment, and the price that customers will pay over the next five years.
Since 2015, Ofwat has been clear and consistent in saying, in this price review companies needed to increase efficiency and improve performance to deliver more for customers. This is particularly important to address the challenges for the future – such as climate change and population growth – and the shortcomings of the past – such as operational failures and concerns that, in some cases, more attention has been paid to taking money out for shareholders than delivering for customers.
To support companies in making this transformation, Ofwat’s price review allows for significant expenditure of over £50bn between 2020-25, of which £13bn is explicitly dedicated to improving services, resilience, and the environment. The price review also allows £1bn of investment that wasn’t requested by the companies to address long-term challenges.
Improved service and investment for the future can be delivered while reducing customers’ bills because Ofwat is pushing for greater efficiency in companies and passing through lower financing costs. An important principle in the price review is that customers shouldn’t pay for inefficiency or to top-up funds to cover companies’ previous shortcomings and help them catch up with others.
Anglian Water, Bristol Water, Northumbrian Water and Yorkshire Water have challenged Ofwat’s approach and want customers to pay more or receive a lower standard of service. Ofwat will set out how its detailed analysis of operational best practice, companies’ historic performance and business plans, and evidence of returns in capital markets shows this is unjustified.
Rachel Fletcher, Ofwat Chief Executive, said “Our aim is to get the best outcome for customers and the environment, and a fair return for investors, both now and the long term. After extensive and detailed analysis in the price review, four companies have refused to accept our view on what customers should pay and the standards they should expect over the next five years. And so we welcome the opportunity for the CMA, with its independent expertise, to settle the matter once and for all.”
“As this review carries on, we will press ahead with our work to transform the sector: in its performance, its preparedness for facing future challenges like climate change and population growth, and its work to rebuild trust by showing the value it can create for society and the environment.”