Competition watchdog to examine Ofwat price review after appeals


FOLLOWING appeals from water companies, the Competition and Markets Authority will be examining Ofwat’s proposed 2020-25 price control.

Every five years Ofwat must decide how much money people should pay for their water and the level of service they should receive.

As part of this, Ofwat considers a range of issues to ensure that water companies ‘serve their customers effectively by keeping bills low while continuing to deliver sustainable services now and in the future.’

In December 2019, Ofwat published its final decision on price control for the next five years.

Companies that are unhappy with Ofwat’s decision have until 15 February to tell Ofwat that they want the case to be referred to the Competition and Markets Authority.

Any appeals submitted before the deadline will be included in Ofwat’s reference.

Kip Meek, Competition and Markets Authority Inquiry Group Chair commented on the process: “Everyone needs water, so it’s really important that customers’ bills are not set too high but at the same time the water companies have enough money to deliver an efficient and high-quality service.

“The Authority will look closely at whether Ofwat’s decision strikes the right balance in this and other areas and will make changes if not.”

So far Anglian Water, Northumbrian Water, Yorkshire Water and Bristol Water have rejected the water sector regulator’s PR19 Determination.

On the other hand, Sutton and East Surrey Water, United Utilities, Welsh Water, Southern Water and Severn Trent have accepted the determinations.

The latest to submit their decision was Southern Water, which accepted the Final Determination ‘reluctantly’, citing the costs and disruption of the appeals process to their customers.

PR19 consisted of a spending package of £51bn for the next five years.

A quarter of this, around £13bn (or £6m every single day for five years), will be investment dedicated to ‘providing resilient services and a better environment in the face of a growing population and climate change.’

PR19 delivers an average reduction in bills of about £50 before inflation, secured by ‘demanding greater efficiency, passing through lower financing costs and promoting more innovation.’

PR19 sets new levels of service so water companies transform their performance over the next five years. These include:

  • Cutting leakage by 16% – saving enough water to meet the needs of everyone in Birmingham, Bristol, Cardiff, Leeds, Liverpool and Sheffield
  • Identifying and helping an additional two million customers who need extra support
  • Investing over £1 billion to protect communities at risk of flooding
  • Reducing pollution into rivers and streams by almost a third
  • Preparing for drier weather by providing £450 million to explore new water resources such as reservoirs or moving water from where there is lots to places with less.

Rachel Fletcher, Chief Executive of Ofwat, commented on the nearing deadline on February 14: “This price review lays down a major challenge for the sector to transform: introducing a demanding set of new performance targets backed by investment for the future, including £13bn dedicated for the environment and future generations.

“This is the greenest price review ever.

“Companies must become more efficient and step up to deliver better services, lower bills and secure long-term resilience.

“We have been clear that shareholders’ rewards will only be earned through a new standard of operational excellence.

“Some investors have accepted this scale of ambition and change but others need to face up to the new reality.

“We are ready to fully engage with the Competition and Markets Authority, setting out our analysis and why we are confident this is the right settlement for customers, the environment, and companies.”

The Authority’s role is to form its own conclusion on the price controls for the individual companies that appeal.

When carrying out this review, the Authority has the same duties as Ofwat.

An Inquiry Group of independent panel members will be appointed to review Ofwat’s price determination decision, supported by a team of staff within the Authority.

The Authority expects Ofwat to give it six months from the date of the reference to complete its review, although this can be extended if the Authority needs more time.

Ofwat will refer the price control for each water company that appeals. Once the reference is made, further information will be available on the Authority website.

At the end of the review, the Authority will publish a report with its final decision on Ofwat’s price controls including any changes that it deems necessary.