The regulator is understood to have prepared a revised draft that would limit the immediate licence changes to those necessary to enable retail competition. That would represent a major victory for the industry, which was concerned the version Ofwat published in October left the regulator too much discretion.
Most water companies are believed to support the suggested compromise. However, some are thought to be seeking legal advice over a clause requiring companies to work closely with Ofwat over future licence changes.
Utility Week understands Ofwat was preparing to refer the matter to the Competition Commission if it could not be confident of sufficient industry support.
The regulator must allow a further four weeks for companies to consider the latest proposals. It is pushing back publication of its methodology for the 2014 price review until late January, when the outcome should be known.
Both industry and regulator have previously shown a desire to reach agreement, as a competition referral would take up to six months, prolonging uncertainty and potentially damaging their relationship.
Last month, the regulator put out a note to “clarify” proposals set out in an October consultation. The note invited companies to make “constructive” responses. That came after water minister Richard Benyon signalled concern over the impact the plans could have on invester confidence.
The affair has caused a headache for the regulator since it launched its initial proposals in December 2011. Last month Pennon chief executive Ken Harvey spoke out in frustration against the Ofwat leadership.
Resolving the deadlock has been top of the agenda for Jonson Cox, Ofwat and former CEO of Anglian Water, since he started in October.