The wait is over: it’s pistols at dawn. Before this week, there had been growing tension and speculation in the water sector as the deadline loomed for companies to throw out their PR19 final determinations and refer their settlements to the Competition and Markets Authority (CMA).
In the end it was Yorkshire Water that reached for the trigger, days ahead of the final cut-off date for CMA referrals – perhaps in the hope of flushing out comrades in arms among its fellow water companies. By the time you are reading this, others may well have taken a stand.
While Yorkshire’s move is no great surprise given the well-trailed discontent in the water sector with the stringent draft determinations set out by Ofwat in December, it is nonetheless big news. It’s the first time we’ve seen one the sector’s big companies challenge their regulatory settlement – to date, it’s only been water-only company Bristol that has battled to change its determination, in both PR09 and PR14.
Yorkshire believes the settlement as it stands leaves it unable to fund the investment it needs to make to deliver the service its customers want.
While its public statement doesn’t give too much detail away, it points to “poorly designed penalty measures over the next five years”, concluding that “the long-term risks to its resilience and customers would be at a level which it cannot accept”.
Yorkshire’s outcome delivery incentives (ODIs), such as leakage reduction and flooding targets, are undoubtedly challenging – although its final deal is not the worst in the industry.
To some Utility Week industry sources, the appeal feels more like a bid to draw a line in the sand on the current direction of travel than an attempt to significantly shift the dial on Yorkshire’s settlement. Observers said it’s an “enough is enough” statement from a leading player in an industry that has become embattled in a regulatory crackdown in recent years.
If so, however, it will be an expensive statement of principle – not only in legal fees but also executive time. There’s also a potential cost in reputation at stake. Of course, if Yorkshire wins, it will do its credit rating no harm at all. If it loses, then less so.
There’s no doubt the decision to go to the CMA is not one that will have been taken lightly by Yorkshire’s board, nor the company’s relatively new CEO and ex-finance director Liz Barber.
What happens next will be fascinating to watch.
Suzanne Heneghan, editor, suzanneheneghan@fav-house.com
www.linkedin.com/suzanneheneghan