Bristol Water and Wessex Water have both been downgraded by credit ratings agency Moody’s.
Bristol, which referred Ofwat’s final determination on its business plan for the next five years to the Competition and Markets Authority (CMA), received a “negative” outlook. It was downgraded from Baa2 to Baa1 over concerns about the uncertainty and delay created by the appeal process.
Moody’s said the downgrade reflected its view that Bristol would be unable to maintain financial ratios in line with guidance for the previous Baa2 rating. It does not expect any increase in allowances to be sufficient for Bristol to restore the former higher rating.
Meanwhile Wessex Water, which accepted its final determination, was also downgraded. Its outlook remains “stable” but because of the “exposure to significant cut” in the allowed wholesale return Moody’s reduced the company’s issuance from A3 to Baa1.
Moody’s said Wessex is not expected to be able to maintain its ratios in line with guidance for its previous A3 rating while implementing its 2020-25 business plan.
Ofwat chairman Jonson Cox last week dismissed fears over the financebility of water companies after a raft of credit rating downgrades. Speaking at Utility Week’s Investor Summit he said the threat of downgrades were a tool to put pressure on the regulator.
In its final determination, Ofwat set out expectations for Bristol to cut bills by 14.8 per cent, allowed the company a wholesale totex of £420.4 million – substantially lower than Bristol was expecting, and allowed total revenue of £553.3 million.
Mel Karam, chief executive of Bristol, spoke to Utility Week about the reasons for appealing the decision and the unfinancebility of the business plan.
Wessex accepted its determination but, in a letter to Ofwat, set out its dissatisfaction that the final determination forced it to go against customer wishes and make cuts instead of investing in resilience.
It is required to cut bills by 13 per cent while being allowed £2.1 billion to spend on totex and a £2.4 billion revenue allowance.