Yorkshire speaks for the many, not the few

Yorkshire Water's rejection of Ofwat's final determination on its 2020-2025 business plan, triggering a referral to the Competition and Markets Authority (CMA), has lit the touch paper on what was already an explosive situation. But will the fire spread? Ruth Williams investigates whether the company's concerns represent a wider rebellion across the sector.

Yorkshire Water is the largest ever to  request an appeal to the Competition and Market Authority – previously water-only companies had done so, but not a water and sewerage firm. Its decision to reject Ofwat’s ruling and take the risk of the appeal process sends a strong message to the regulator – even if other companies don’t follow suit.

Industry sources expected a raft of companies to make a move once the first referral was announced but with only a few days to the deadline it remains all quiet on the waterfront.

One insider told Utility Week: “Lots of people were waiting to see who would move first. What the sector gets out of someone going to the CMA is they can register the industry’s views on how the price determinations were set. So even if no other company appeals, it shows what is thought about the methodology and the approach. Whatever happens it’s an important means by which views get transmitted.”

Speculation about which other companies may go down the appeal route have circulated since the publication of the draft determinations in July when Ofwat showed its firm hand on targets and costs.

Concessions were made in the final determinations but was sufficient ground given to prevent a deluge of appeals in what had been widely called the toughest determination yet?

Since Basil Scarcella took himself out of the running for the top job at Thames, the UK’s largest water company has been forced back to the drawing board. A time-consuming CMA process is likely to be the last thing the board wants to be embroiled in – let alone a prospective CEO – but does the company have a choice? Utility Week understands a special shareholder meeting has been held to decide if the conditional offer from Ofwat is acceptable, including the funds investors are expected to contribute.

Other companies are similarly holding meetings to agree on the acceptability and financebility of the determinations set by the regulator. Anglian has the biggest gap between Ofwat’s expectation of totex and its own to the sum of £744 million; while Southern has a remaining difference of £235 million and Northumbrian a £156 million difference.

Yorkshire and Wessex each confronted Ofwat in their responses. Wessex – which had a totex gap of £141 million – stated that although they would accept the terms, their customers wanted to see long-term investment not just cuts to bills.

Yorkshire came out and said the plan posed an unacceptable risk to resilience for its customers despite the high support the draft determination received from Yorkshire customers.

Research by the Council Council for Water (CCWater) showed nine out of ten customers found the plan ‘acceptable’ or ‘very acceptable’, feedback that will be included in CCWater’s evidence given as part of the appeal process.

Rob Light, CCWater’s chair said its vital to reflect the “very strong support” among customers for the existing package.

“Customers don’t have the same right as companies to appeal the regulator’s decisions, so we’ll make sure that the views of Yorkshire Water’s customers are strongly represented during the appeal process.”

So far fast-tracked United Utilities and Severn Trent have accepted their final determinations – including for Hafren Dyfrdwy for the latter. Besides Wessex, Welsh Water accepted its determination and received a lower credit rating from S&P in response. The firm called it a disappointing but “not unexpected” decision.