Ofwat tells CMA firms can’t ask customers to pay for ‘previous shortcomings’

Ofwat has reminded companies that “customers shouldn’t pay for inefficiencies” as it made its submission to the Competitions and Markets Authority (CMA) against the four water companies that referred the final determination of their business plans.

Meanwhile, the CMA has named the appeal board and issued an assurance that coronavirus would not interrupt it from processing cases.

The regulatory body for the water sector defended the outcome of the price review saying its message remained clear and consistent in asking companies to find greater efficiencies and improve performance.

In a statement, Ofwat noted that “an important principle in the price review is that customers shouldn’t pay for inefficiency or to top-up funds to cover companies’ previous shortcomings and help them catch up with others”.

Anglian, Bristol, Northumbrian and Yorkshire Water each requested an appeal to the CMA in February following the publication of the final determinations in December.

Ofwat said its final determinations addressed the challenges of climate change and population growth as well as tightening up the financial regulation to ensure customers are prioritised.

The regulator said its message was important to tackle “the shortcomings of the past”, saying these included concerns that, in some cases, “more attention has been paid to taking money out for shareholders than delivering for customers”.

Chief executive Rachel Fletcher welcomed the opportunity for the CMA “to settle the matter once and for all.”

The regulator said it would set out how its detailed analysis of operational best practice, companies’ historic performance and business plans, and evidence of returns in capital markets show the companies’ stance is unjustified.

PR19 was universally dubbed the ‘toughest review ever’ by the companies and called unworkable and unfinanceable by companies after the draft determinations were published last summer.

The CMA said an administrative timetable would be published shortly outlining the key milestones and proposed timeframe for the completion of the redeterminations.

Amid current uncertainty surrounding working conditions because of coronavirus, the CMA announced it may be forced to extend some statutory deadlines, but remains committed progressing all cases and will hold hearings remotely.

The CMA has named the five people who will form the ‘special reference group’:

• Chairperson Kip Meek
• Robin Cohen
• Anne Fletcher
• Roland Green
• Paul Muysert

Meek formerly sat on the board at Ofgem as well as being a founder of Communications Chambers and senior adviser for EE and BT; Cohen previously worked across energy and competition practices at Charles Rivers Associates, was a partner at Deloitte.

Fletcher is a member of the CMA’s specialist utility panel. She is a solicitor who spent many years focusing on regulated industries including telecoms, finance and postal service; Green is also a member of the specialist communications and utility panels. He previously acted as a legal and policy adviser to the CMA and the Competition Commission; Muysert has worked on economics of competition policy and regulation around the world and also sits on the CMA’s specialist panel for utilities.