A statutory deadline of 18 March 2021 has been set for the Competition and Markets Authority (CMA) to reach a decision on the four appeals against Ofwat’s price review.
This month Anglian, Bristol, Northumbrian and Yorkshire will submit their grounds for requesting a redetermination, followed by presentations to the board, which was selected last month and comprises independent experts from the utilities sector.
In May, Ofwat will respond to the representations of the four companies and present itself to the board, followed by third party hearings.
Ofwat described the water sector’s performance as having “flatlined” and needing the tough price review that it set. In its initial response as part of submissions to the CMA, Ofwat denied the evidence from the four appellants that said they could not deliver on the targets of PR19 or found them unfinanceable.
Addressing the individual companies’ rejections of their price review, Ofwat said Anglian was permitted the sufficient funds (£5.6 billion) for its services and to offer customers better outcomes.
Despite a £744 million difference between Ofwat and Anglian’s total spend, the regulator said the company was “fully funded to meet its requirements” including water resource management planning and providing resilience in the face of population growth.
Anglian’s head of regulation Alex Plant previously told Utility Week the determination would not let the company follow its customers’ wishes of protecting the environment and boosting future resilience – even if that meant bills rose.
He said: “We really felt duty-bound to honour what our customers want us to do.”
Bristol embarked on its third appeal process – something chief executive Mel Karam sincerely hoped to avoid but conceded the company had no choice – when it rejected the price review after not being granted a cost allowance.
Karam told Utility Week the company relished the challenge of the ambitious targets but without the cost allowance said the plan was simply unfinanceable.
Northumbrian, which was permitted £2.9 million for investment, was criticised by Ofwat for its high expenditure around resilience investment. The regulator said its interventions in the plan protect customers from paying for inefficient costs or for customers paying twice for the same service.
Like Anglian, Northumbrian also said Ofwat’s plan would prevent the company from carrying out customer wishes and cutting bills by 25.6 per cent.
Yorkshire Water had a £370 million gap between its own plan and Ofwat’s final determination and cited the “poorly designed penalty measures” and its customers non-acceptance of the long-term risks to resilience posed by the plan.
Ofwat said its determination granted Yorkshire 10 per cent more than it had historically spent, while the performance requirements would ensure the company delivers on resilient services for the short and longer term.
Ofwat said: “Despite significant progress since privatisation, performance improvement across many areas in the water sector had stagnated and needed to be reinvigorated.” It said its expectations for the sector were to improve service delivery, customer efficiency and a more resilient and reliable water supply for the next five years and beyond.
The regulator highlighted the issue that corporate behaviour had dented public confidence in the sector and it required more transparency to redress the problem. Sector-wide environmental incidents fell sharply until 2015 when they plateaued, something else Ofwat said must be addressed through tough regulation.
Leakage, customer service and resilience were highlighted as in need of attention across the board, while strong performance by individual companies was hailed as an example all others companies should be able to reach.
Ofwat said: “We see no compelling reason why lagging companies should not be able to catch up with those companies which have demonstrated that good service performance is possible. We do not consider that customers of lagging companies should have to pay higher bills to receive service levels that have been achieved by other companies.”
It found Anglian and Yorkshire to have gearing that was higher than it deemed acceptable while Northumbrian and Bristol’s debt levels were closer to its notional level of 60 per cent. Inter-company loans, which have now been banned by Ofwat, were used by both Anglian and Yorkshire as part of financial restructuring.
The regulator spent years designing, consulting and developing the price review that would offer value for customers and restore public faith in the sector.
The CMA will analyse all evidence over the summer and has until late August to consider the evidence before publishing a provisional determination in September.
All parties have the opportunity to consider and respond to the provision determination followed by another stage of analysis by the board.
By early December the determinations should be sent to Ofwat. However, the schedule was given flexibility due to anticipated delays or disruption caused by coronavirus. Therefore, the CMA was granted an additional six months to complete the process.