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Competition watchdog turns the taps back on for water investors
29 September 2020, 15:34
Companies were set to tighten their belts under Ofwat’s new rules.
Plans to save households around £50 on their annual bills have been put in jeopardy after the competition watchdog said that water networks needed more money to invest in their infrastructure.
The Competition and Markets Authority (CMA) found that Ofwat had been too strict on how much water companies could invest in resilience and reducing water leaks, and decided to put more money in the pockets of shareholders.
It was reviewing Ofwat’s decision on the request of four water networks – Anglian, Bristol, Northumbrian and Yorkshire.
But consumer champion Citizens Advice accused the CMA of bowing to pressure from the industry.
“We’re disappointed the CMA’s initial findings are not recommending a better deal for customers – particularly at a time when so many people are struggling financially,” its chief executive Gillian Guy said.
Researchers from the group claim that customers have paid over the odds for their energy, water, broadband and telephone networks to the tune of £24.1 billion over the last 15 years.
It claimed Ofwat could tighten water bosses’ belts even further.
Ofwat said that 13 of the UK’s 17 water networks had accepted its findings.
But the four that appealed to the CMA said that Ofwat had not given them enough funding to improve resilience, did not allow investors a “reasonable level” of return, and increased the risk to the companies.
The CMA said its findings would still save customers money, and companies will still need to tighten their belts, just less so.
“While we came to similar decisions as Ofwat on many issues, we think the water companies need to be provided with more revenue to secure continued investment in the sector,” said Kip Meek, who chaired the CMA’s inquiry panel.
Ofwat said it has “respect” for the CMA and will examine the regulator’s analysis before submitting more evidence before a December deadline.
Its chief executive Rachel Fletcher said: “We wanted this price review to be demanding, making companies more efficient, improving their performance for customers, and closing off easy returns for investors.
“Our aim is for companies to give everyone the high quality and resilient services they deserve, while looking after the natural world and keeping bills affordable.
“To support companies in making this transformation, we have sanctioned customer funding of more than £50 billion over the next five years.
“Nonetheless, our final determinations demanded a step change from the sector, so it is unsurprising that four companies considered the challenge uncomfortable.”
Yorkshire Water boss Liz Barber said she was keen on “ensuring that the cost of vital infrastructure investment was not pushed on to future generations”.
The news also helped push up shares in National Grid and SSE. Energy networks are facing a similar battle with their regulator, and several have indicated they might appeal against Ofgem’s final decision to the CMA.