Ofwat sets new ring-fencing provisions for water companies

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OFWAT has announced today that it has modified the licences of 16 of the 17 water companies in England and Wales, who have accepted new ring-fencing provisions.

One element of these changes is to protect customers by restricting pay-outs to shareholders if the company is in financial distress.

Rachel Fletcher, Chief Executive at Ofwat, commented on the announcement: “Today marks a positive step towards protecting customers’ interests and promoting financial resilience in water companies.

“We have consulted extensively on these measures and are encouraged that all but one of the water companies have consented to these important changes.

“These provisions will help to promote financial resilience and stability and so protect customers and long-term shareholders alike.”

All water companies, except Wessex Water, have accepted these safeguards.

The companies’ licences were amended on 10 July 2020, and the amendments came into effect on 13 July 2020.

Modifications to the licences of the water companies include:

  • inserting a new requirement to inform Ofwat when the regulated company becomes aware of arrangements which may lead to a change of control;
  • modifying the requirement to use “reasonable endeavours” to maintain an investment grade credit rating, to a requirement that companies “must ensure” that an investment grade credit rating is “maintained at all times”

Ofwat’s document is available here