Yorkshire Water’s credit rating has been downgraded to negative by Fitch Ratings as a result of Ofwat’s risk and reward guidance for PR14.

Fitch is concerned that water companies will suffer from lower returns following Ofwat’s announcement last month that its target weighted average cost of capital (WACC) is 3.85 per cent for 2015-2020, down from 5.1 per cent in the current cycle.

While Yorkshire Water could earn additional returns from outperformance incentives, Fitch says the impact of this could be limited.

The ratings agency will re-assess the sector’s scope to outperform and establish detailed forecasts as the price control process progresses.

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