CMA water appeals regime set for reform

The government is considering fundamental changes to the regulatory appeals process for water companies.

This includes the possibility of moving away from a complete redetermination of company business plan submissions in favour of appealing specific aspects – to mirror the regime for energy.

At present, price control decisions are made by Ofwat and companies have the option to accept or reject the final determination. The Competition and Markets Authority (CMA) reaches its own conclusions on the entirety of a business plan for companies that reject Ofwat’s determination.

A consultation published alongside Jeremy Hunt’s autumn statement notes that the current redetermination process has not been re-examined since privitisation in 1989 despite business plans becoming much more complex in the following decades.

The consultation describes the current approach as “gold standard”, while admitting it may be “more intensive than necessary” and representing a complicated, laborious process. Government adds “it is unclear why the CMA is better placed than Ofwat to decide on some water-specific issues (for example around enhancement projects, such as the capacity required for a new pipeline).”

The consultation questions the appropriateness of continuing with redeterminations, or whether something similar to the energy regime could be implemented. For energy network business plans, the CMA decides whether the appealed decision was wrong on one or more specified grounds.

The consultation acknowledges this can result in “cherry picking” because the regulator makes a determination in the round rather than on individual points. However it suggests the approach may be more favourable than the existing regime for water regulation.

Redeterminations have always been available but until the 2019 price review (PR19), no more than a single company each time chose to appeal. At PR19 there were four appellants, which took the CMA 12 months instead of six to form a ruling on.

The four companies each gained from their redetermination, despite the CMA leaving large swathes of Ofwat’s decisions unchanged.

The proposed changes to the process would apply to future price reviews, not the upcoming PR24, the consultation states.

The CMA, the consultation says, has raised a concern that consumers may not understand the different processes for energy and water regulation and calls for greater consistency in the appeal frameworks.