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Ofwat has modified the licences of water companies in England and Wales, with the exception of Wessex Water, to limit the amount of money shareholders can be paid if a water company is in financial difficulty.
The changes, effective from 14 July, were made to ensure water companies stay financially fit to be able to serve customers and ultimately protect billpayers.
Rachel Fletcher, chief executive at Ofwat, said it marks a positive step towards protecting customers’ interests and promoting financial resilience in water companies.
Ofwat said the sector was generally supportive of the licence changes, which include new reporting requirements and a modification to the wording that companies should use “reasonable endeavours” to maintain investment grade credit rating, now insisting they “must ensure” such credit rating is “maintained at all times”.
Following consultation, Wessex did not consent to the changes on grounds that it did not find it necessary to have “inflexible” conditions in place. It said the existing practice of its board has been to withhold dividend payments if its credit rating is at risk of downgrade.
Ofwat expressed its disappointment that Wessex did not consent to the change and said it will “consider how to proceed” .
The move builds on previous licence amendments that prohibit water companies from entering into financial arrangements that do not serve the interests of billpayers by blocking inter-company loans between parent and subsidiary companies.
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