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Chances are the Ofwat top brass won’t be shedding too many tears at the news, not wholly unexpected, that Bristol Water has rejected its price determination, forcing a referral to the Competition and Markets Authority (CMA). While this delays the conclusion of the long drawn out PR14 process, and creates extra work and risk, it also paints the regulator as a tough watchdog, doing battle to bring down bills for customers in Bristol by nearly a quarter, in the face of opposition from the water company. That’s a handy image to have months before the election when its fellow regulator Ofgem is on the ropes. The regulator will also have its day in court; its chance to prove beyond doubt the robustness of its new approach to the price review, which it will no doubt relish.
For Bristol, it’s a “courageous” move – in the Sir Humphrey sense of the word. Water companies have seldom been to the competition authorities and when they have, they haven’t come away with much (see analysis, p12). Bristol went to the Competition Commission last time round and, while it got more than Ofwat had been willing to give, it was still less than half the price rise it originally wanted, plus a lower cost of capital. It is not out of the question that the same could happen again, given the wider economic conditions.
This week’s move smacks of a company running out of options, having already been through one price cycle with considerably less than it wanted, and now facing a yawning £132 million gap between its sums and the regulator’s. Bristol is confident in its argument that the regulator’s modelling is flawed, although it is undermined somewhat by the fact that other companies, including United Utilities and Thames, which also faced big gaps at the start of the negotiating process, haves since fallen into line. The experts at the CMA will decide – but Bristol should be wary of ending up, like appellants before it, with “a bloody nose”, to borrow a phrase from former Ofwat director general Sir Ian Byatt.
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