NAO slams Ofwat for allowing multi-million pound windfall

Water company finances are set to re-enter the national spotlight this week with the National Audit Office (NAO) slamming Ofwat’s price control regime for allowing companies to retain multi-million pound windfalls.

The NAO claims water companies pocketed £815 million between 2010 and 2015 as a result of the low interest rate environment and cuts to corporation tax.

It acknowledges Ofwat’s efforts to encourage companies to share gains with customers over the period, with an additional £435 million being returned to bill payers over that five year period, but says more needs to be done in PR19 the “increase the pass through”.

Between 2010 and 2015, water companies gained around £410 million from lower than expected tax rates and £840 million from lower than expected interest rates.

NAO comptroller and auditor general Amyas Morse said the customers have “not seen enough of the benefits” from the financial gains and that Ofwat’s “price cap regime is not yet achieving the value for money that it should”.

Chair of the Public Accounts Committee Meg Hillier also slammed the regulator for failing to force companies to pass on the financial benefits and said: “More work is clearly needed to ensure customers share in savings made by water companies.”

Ofwat defended its record and said it has responded to concerns over companies’ profits in its recent price review PR14, with financial reward and penalties being linked to performance, and with the “the lowest ever cost of capital in a regulated sector”.

Ofwat chief executive Cathryn Ross was “surprised” the NAO says the regulator does not deliver value for money, and added there is evidence of “strong delivery”.

She added Ofwat’s price reviews “shielded customers from increased financial risk which could have led to significant bill increases had rates increased” and that this is a “risk we did not think [customers] should bear”.