The regulator urged water companies concerned about its proposals, which enable changes to the way it sets price controls, to set out how those concerns could be addressed.
This could be by offering further assurances and clarity or using a different basis to set its threshold for how much of the business could be moved out of the inflation-linked wholesale price control, Ofwat suggested. That threshold is currently set at 20 per cent of revenue in any price setting period or 40 per cent altogether.
John Musk, an analyst at RBC Capital Markets, said the note showed a “softer tone” from the regulator and suggested there could be some middle ground.
Companies have until Friday to respond to the consultation. If one or more reject Ofwat’s plans, as seems likely, the matter will be referred to the Competition Commission.
The industry fear is that the proposals give Ofwat too much discretion to change the basis of price setting and could damage investor confidence.