Ofwat rules out windfall clawback mechanism

Ofwat chief executive Cathryn Ross has ruled out the introduction of a windfall clawback mechanism in future price reviews.

Speaking exclusively to Utility Week she said the regulator would not introduce a system whereby windfalls, such as the £815 million the National Audit Office (NAO) reported water companies made between 2010 and 2015, could be taken from the companies and handed back to customers.

She said: “Is there going to be a retrospective clawback in PR19? No there isn’t.

“What I would not want to happen whatsoever is any regulatory clawback mechanism whereby we are reaching back retrospectively into a settlement in a way that companies or investors could not see at the time they accepted the settlement, either to claw money back for customer or to protect investors – it goes both ways.”

Ross added that while a clawback mechanism is not being considered, Ofwat is looking at “the balance of risk and reward” between investors and companies, and with customers as part of its Water 2020 programme.

“We are going to look at the balance of risk and reward, we are going to look and pain and gainsharing mechanisms,” she said.

The comments come after the NAO slammed the regulator for not offering value for money to customers by allowing companies and investors to make the £815 million windfall in the PR09 price control period.

It states that 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.

The NAO acknowledges Ofwat’s efforts to encourage companies to share gains with customers over the period, with £435 million of the £1.2 billion windfall being returned to bill payers over that five year period, but says more needs to be done in PR19 the “increase the pass through”.