Ofwat remains steadfast on CMA appeals

Ofwat has remained steadfast in its position against the four appealing water companies as the Competition and Markets Authority (CMA) redetermines their business plans out to 2025.

Responding to the arguments made by Anglian, Bristol, Northumbrian and Yorkshire Water in their submissions to the CMA, the regulator claimed its position was misrepresented in several instances and asked competition watchdog to look beyond such “unhelpful” rhetoric.

Ofwat stood by its approach to financing, stating that it remains consistent with previous determinations and that companies are still financeable on the basis of its notional capital structure.

On cost efficiency, Ofwat reiterated that its costing models had been subjected to extensive scrutiny and warned the CMA that the same is not true for the alternative models proposed by the companies making an appeal.

Consistent with its previous announcements, Ofwat again suggested that any regulator adjustments to account for the coronavirus pandemic should only be considered or implemented once there is a better understanding of its true impact on companies and customers.

Over the past two months the CMA has gathered submissions from stakeholders, as well as the four appellants and Ofwat, to redetermine their price controls for 2020-25.  The regulator warned the CMA to be aware of the nature and membership of some of the bodies that made submissions in support of the four appellants. Ofwat said it is “in no sense alleging any kind of impropriety” but asked that the CMA considers the context of the submissions.

In response to Anglian, whose case relies heavily on the customer support it received for its business plan, Ofwat said it met with members of the consumer group to explain where and why it was necessary not to follow the customers’ views.

And in the case of Bristol Water, which argued the final determination went against the precedent set in the previous price reviews to give proportionally larger spending allowances to smaller companies, Ofwat described the company’s claims as “baseless”.

Bristol had argued the allowed cost of debt was skewed towards larger companies and so it should therefore receive a larger allowance because of its size. Ofwat disputed this assertion and stated that its approach to the assessment of financial ratios was consistent with the PR19 methodology and with previous price reviews. It said any issues arising from penalties for past performance were for the company and its investors to bear, not customers.