Industry welcomes ‘challenging’ final determinations as a good deal

Ofwat’s final determinations, which have been published today and set out how much water companies can charge their customers for the next five years, have been welcomed by the industry as “challenging” but as a good deal for bill payers.

Water UK chief executive Pamela Taylor:
“Companies have worked extremely hard to deliver falling bills for customers while continuing to invest billions to improve services even further.
“Our members have done more than just talk about responding to a cost of living crisis, they have taken action to deliver help where customers really need it, by reducing their bills.”

Welsh Water’s chief executive Chris Jones:
“During this challenging price review, we needed to balance a number of priorities between making service improvements, safeguarding the environment whilst also keeping bills affordable by ensuring that we deliver a decade of below inflation price increases by 2020.”

Northumbrian Water’s chief executive Heidi Mottram:
“The final determination appears to balance a good deal for customers with a tough challenge for the company.
“There is a lot for us to consider within Ofwat’s determination and it will take time for us to look in detail at many aspects.”

Wessex Water chief executive Colin Skellett:
“Our multi-million pound investment programme is based on the views of our customers, delivering improvements in infrastructure, resilience and higher standards of customer service. At the same time, by reducing returns to shareholders and further improving our efficiency, we have been able to lower customers’ bills in real terms.”

Yorkshire Water chief executive Richard Flint:
“Our consultation programme was the biggest of all the water and sewerage companies, so we’re confident that it represents real value for money for our customers.
“We’re looking forward to working closely with local communities to deliver our plan in the most effective and efficient way possible. We’re proud of the fact that we’re currently the most financially efficient water and sewerage company in the UK and we’re committed to ensuring that we continue to deliver value for money and invest in the things our customers say are important to them.”

Sutton and East Surrey Water managing director Anthony Ferrar:
“Today’s announcement is a very important step in the lengthy and complex process to set water bills for the next five years.
“We have an important duty to make sure that the price decisions being made for today’s customers don’t ultimately compromise our ability to achieve the same high standards of water supply service for tomorrow’s customers.
“That’s why we will carefully consider Ofwat’s decision so we can assess the impact it could have on our ability to deliver our promises up to 2020 and beyond, to ensure we have sufficient income from water bills to keep taps flowing with high quality, reliable supplies.”

Investors have also largely welcomed the final determination, saying it is “in line” with or better than what was expected.

Investec analyst Roshan Patel
“In our view, the final curtain reveals a balanced outcome for equity investors featuring a tougher Wacc allowance, but with no huge cost gap for any of the listed sector companies.”

RBC Capital analyst Maurice Choy
“There are a lot of details to go through, but broadbrush, it appears to be positive for the UK water companies.”

Whitman Howard utilities analyst Angelos Anastasiou
“Our early thought is that the final determinations appear to be in line with expectations: relatively tough but probably acceptable.”

Deutsche Bank research analyst James Brand
“Ofwat announced an 11 basis point cut in the allowed return on capital from 3.85 per cent vanilla real to 3.74 per cent. This was broadly in-line with our expectations for a 10 basis point cut, and should provide scope for attractive returns in our view.”

KPMG’s UK head of deal advisory for energy Andy Cox
“For many of the water companies the final determination is likely to be stretching, with management’s ability to outperform on financing, or the weighted average cost of capital, reduced. Therefore much of the emphasis will be on placed on operational outperformance and any new investors will want to see an AMP6 track record, before diving in.
“There will also be a greater emphasis on diligence, in order to deliver on shareholder commitments; in terms of managing costs, incentives, rewards and sustainable performance. This could all lead to us seeing macro-economic or financing risks paling in comparison.”

However, despite a 5 per cent cut in bills in real terms over the five year period, there are concerns from the Consumer Council for Water (CCWater) and Labour that bills will increase in cash terms because of inflation, and the opposition party reiterated its plan to reform the water sector.

CCWater chief executive Tony Smith:
“Most water companies and the regulator have listened to customers and delivered a deal which reflects the services they want, at a price most find acceptable. But customers need to be aware that water companies are allowed to add inflation to bills each year which means charges are still likely to rise from what they are now. That will hurt some households.”

Labour’s shadow environment secretary Maria Eagle
“For many people prices are still going to be rising faster than wages and that’s why one in five people are struggling with their water bills. Water companies are allowed to add inflation to these prices and for most people that will put their bills up.”
“We will reform the water industry, creating a national affordability scheme to support those customers who are struggling most with their bills. We’ll also give the regulator tough new powers to cut bills and ensure that water companies play by the rules and put consumers first.”

The water companies now have until 12 February 2015 to consider their final determinations before deciding whether to formally accept them or to appeal to the Competition and Markets Authority.