Ofwat’s zero sum game

Thames has found Ofwat in no mood to negotiate on prices, says Ellen Bennett.

Ofwat’s uncompromising response to Thames Water’s bid for a bill increase came as little surprise this week. Battle lines were drawn when Thames went ahead with its application for an interim determination, knowingly risking the ire of Ofwat chairman Jonson Cox and his team.
The Thames camp insists it is only asking for what it is entitled to, but its approach has been interpreted as a refusal to work co-­operatively and heed the messages coming out of Ofwat. It was almost certain the regulator would refuse Thames’ bid for a £29 levy, particularly in light of the current furore over the cost of living. Thames would have known this, but been hoping for negotiation. Ofwat, however, seems determined to make a point, offering Thames nothing at all – subject to “technical consultation”.
Further skirmishes can be expected. The regulator has put corporate governance top of its agenda, saying boards should be predominantly governed by independent non-executive directors. Thames has 18 board directors, nine of whom are non-executive and six of whom are alternate directors, appointed to represent them when they are not available – a practice Ofwat has criticised in general terms. There are three independent non-executive directors.
Thames needs to keep its shareholders happy, and reassure them that it will recoup the costs of the massive Thames Tideway Tunnel. This will have been one of its motivations in asking for more cash: a red rag to Ofwat, given that Cox has been vocal about some water companies putting investors’ interests above those of customers. Thames would argue that its bills are the lowest in the country; that it is asking for only a one-off rise; and that the very shareholders demonised in the media are in fact largely pensioners dependent upon a decent financial return on their investment.
Ofwat sees it differently. If it sticks to its guns and offers Thames a settlement of zero, the water company is likely to take it to the Competition and Markets Authority. And then Thames submits its AMP6 business plan, and the real battle begins…