Ofwat accused of ‘closing the door’ to early resolution of CMA appeals

Ofwat’s unwillingness to concede any of the points raised by the four companies appealing its PR19 final determinations has effectively ended hopes of an early resolution to the process.

This is the view of Anglian Water, set out in the latest stage of the Competition & Markets Authority (CMA)’s investigation.

Anglian was responding to Ofwat’s submission on its own statement of case to the CMA, which had expressed a desire to expedite the investigation so that all parties could focus on the challenges presented by coronavirus.

However, the company said: “Regrettably, Ofwat seems to have concluded that, despite the huge amount of evidence and expert reports submitted in the statements of case, there are almost no points that any party has raised that merit any adjustment to its final determination position.

“This inflexible position seems to close the door on finding a way forward to early resolution.”

Anglian also hit out at Ofwat’s portrayal of the company as being focused on dividends and shareholders rather than customers and service, and said the regulator had overlooked the efforts it had made to embed social and environmental purpose into its work.

The company maintained that its costs are efficient and clarified that its dividend policy will see no payments made to shareholders in AMP7.

It set out nine further “mischaracterisations” made by the regulator, including gearing and cost efficiencies.

Anglian is one of four companies that referred Ofwat’s decision on their business plans for 2020 to 2025 to the CMA, with the others also making fresh statements.

Bristol Water also said it was concerned by the tone and content of Ofwat’s response. It called the language used in Ofwat’s submission “unnecessarily aggressive”, and said the regulator was dismissive of key issues and overly focused on irrelevant process matters.

Bristol’s case largely rests on a financial issue that, arguing that previous rulings by the CMA should have set a precedent which Ofwat did not follow.

The company reiterated the point made by chief executive Mel Karam earlier this year that it took the decision to appeal very seriously and had not wanted to be in the position again but was “left with no choice” after Ofwat ignored this precedent.

It reminded the CMA that its own case is different from the other three appellants and Ofwat’s response referred to collective disputes rather than the specific issues Bristol had raised.

Northumbrian also hit out at an “inaccurate” portrayal by the regulator saying Ofwat made “factually incorrect” statements and mischaracterised both the company and the way it presented its case to the CMA. It echoed Bristol’s view of the tone taken: “We are disappointed that Ofwat has taken this approach, but we will demonstrate to the CMA why it should not be distracted or misled by those comments.”

The company maintained its stance that the balance between resilience and bills was not appropriately struck in the final determination and would go against billpayer wishes on investing in the future.

The company also noted that third-party representations from an unprecedented 40-plus stakeholders showed “a level of concern with the final determinations for PR19 which the CMA will need to take into consideration in its redetermination”.

Yorkshire Water insisted its decision to appeal was “a principled one” to address the perceived unfairness of the final determination and the implications for the company and wider sector.

The company said it “had no choice” but to seek a redetermination because of the high level of billpayer support its plan received, which it said had grown further since earlier submissions.

Yorkshire said Ofwat had relied on evidential and methodological errors as the building blocks of the final determination, which it claimed were supported by neither models or evidence. These, Yorkshire argued, were combined and presented as expectations that went beyond what could be reasonably expected.

The company has consistently questioned Ofwat’s expectations of best practice and accused the regulator of cherry-picking examples without assessing the wider implications.

It said there was a disconnect in the final determination between costs and outcomes and between risks and return. As a result, it suggested penalties would be inevitable, which would lead to a shortfall in costs and thus pose “significant harm” to financial resilience.

“Although service could perhaps be managed in the short term by refocussing investment, in the circumstances this would require sustained perfect weather conditions – whereas the reality is that increasing climate volatility brings a higher level of risk that is outside of management control. This is a direct result of the disconnects between costs and outcomes and between risk and return that are evident in the final determination.”

The redeterminations should be completed by the CMA and sent to Ofwat in December, but a pre-agreed extension because of coronavirus may see that date pushed back.