by Megan Darby
Fears remain that Ofwat “section 13” plans to modify licences could harm the industry’s ability to attract cheap investment, despite substantial changes to the original proposals.
Individual water companies have until 23 November to decide whether to accept or reject the amended plans. A rejection would trigger a referral to the Competition Commission, which could take six months to report.
The regulator said the revised proposals were for “modest and evolutionary change, with essential safeguards to protect the interests of all stakeholders”.
In response to industry concerns, Ofwat has committed to retain an explicit link to RPI and have it written into licences for wholesale controls. Wholesale activities account for around 90 per cent of water firms’ business.
However, Ofwat will have the ability to alter the definition of “wholesale”. Activities generating up to 40 per cent of revenues could be moved out of the wholesale control over time, and up to 20 per cent in a single price-setting period.
Rob Wesley, policy adviser at industry body Water UK, said: “The key question is whether this will really maintain investor confidence. The indications we are getting suggest it will not.”
Ratings agency Moody’s said the degree of flexibility Ofwat sought was “surprising” and it believed a number of water companies would reject the changes.
A Competition Commission referral would prolong uncertainty, it added, and be “time consuming, expensive and unlikely to benefit the company’s relationship with Ofwat, at an important time”.
This article first appeared in Utility Week’s print edition of 2nd November 2012.
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