Several water companies in the UK have referred industry regulator Ofwat to the Competition and Markets Authority or CMA over the five-year financial plan that enables stricter price control for the sector.
The final determination, known as PR19, was the subject of frustration for many water firms, prompting them to reject the decision and ask the competition watchdog to review the said final decision.
The CMA has already announced that it will be looking into the issue to determine whether the price control for 2020-2025 is within reasonable grounds. Its role is to form an independent conclusion on PR19 regarding the water companies’ appeals.
Anglian Water, Northumbrian Water, and Yorkshire Water have all appealed to the CMA to review Ofwat’s final determination called PR19 for the price controls set for five years from 2020.
The regulator ordered companies to slash £50 from customers’ annual bills last December. It also instructed firms to spend £51 billion to invest in infrastructure and improve services. It was decided upon by Ofwat amid tax avoidance. The regulator also noted bumper dividends for shareholders and poor leak prevention records within bigger water companies.
The CMA has positively received the companies’ appeals, indicating that it will review the price controls and see whether any change is necessary.
An Inquiry Group composed of independent panel members will be tasked to review the final determination, which will also be supported by some of the CMA’s staff. The competition authority expects to complete their review within six months, although it is amenable to extending the period as it sees fit.
Chairperson for CMA’s Inquiry Group, Kip Meek, said that there should be a balance between affordable customer bills and the water companies’ funds so that they can deliver high-quality service. The CMA stated that it would determine whether the regulator’s decision will strike fairness for both consumers and water firms. It will also provide recommendations for any change to the PR19 that will help achieve the right balance.
Ofwat’s recent decision has ignited the biggest revolt in the privatised water sector in its 30-year run.
Ofwat ordered Anglian to cut annual bills by 10%. However, the water company stated that the price controls put its proposed £6.5-billion spending in jeopardy. Much of the amount will be allocated for smart meter installation and fixing leaks.
The crackdown slashes over £500 million from the company’s annual income, which will negatively affect its 300-mile pipeline project to deliver water to Essex from the Humber.
Peter Simpson, Anglian CEO, said that the region is challenged by several factors such as climate change and an increase in population, which is why it has earmarked several projects to improve its services and infrastructure.
Anglian has not paid dividends in two years, according to a spokesperson, and has indicated that it will not pay a dividend until 2025 as part of the company’s investment plan.
Yorkshire Water CEO Liz Barber stated that the PR19 prompts companies to concentrate on short-term performances as opposed to focusing on longer-term investments that will provide sustainability for the water sector.
The company said that it could not accept the risks brought about by the final determination on the company’s resilience. It noted the poorly-designed penalties would be jeopardising Yorkshire Water’s performance.
While the water firm is committed to providing safe and reliable services to its customers, it maintained that the new price controls make its goal of becoming the most efficient company unattainable.
The water and sewerage company Northumbrian Water stated that it made extensive consultations with roughly 500,000 customers to determine what needs to be prioritised. It found that assurance of services and cost efficiency are what customers expect.
Northumbrian Water (NWL) took these findings and incorporated them into the company’s business plans to ensure that consumer bills are reduced and those necessary investments are made. However, the new price controls have put the firm’s plans in jeopardy.
NWL firmly stated that PR19 negatively affects the firm’s financial resilience and its ability to provide the customer’s expectations when receiving water and wastewater services.
Heide Mottram, the CEO, stated that while NWL is a highly efficient company with a great track record, the final determination works against the company’s long-term best interests of its customer base.