British water regulator Ofwat is facing its biggest fight with the regional water monopolies since privatization three decades ago, after four companies announced they would take the regulator’s latest industry price review to the competition authorities.
Northumbrian Water, Anglian Water, Yorkshire Water, and Bristol Water are appealing Ofwat’s financial settlement, which sets out how much water companies can charge customers and how much they should invest in infrastructure over the next five years.
Thames Water, England’s largest water company, had been sharply divided as to whether to also appeal but decided to accept the settlement on the grounds that fighting it would lead to “significant management distraction.” The company, which has become a lightning rod for criticism of the sector, is still searching for a chief executive after Steve Robertson was forced out by the board nine months ago.
The scale of this year’s appeal to the competition authorities is unprecedented in the water industry and comes as Ofwat seeks to respond to accusations that it has failed to protect consumers adequately since water companies were handed to private companies almost free of debt in 1989. The watchdog, led by former Anglian Water boss Jonson Cox, has demanded the companies cut water bills by an average of £50 (US$65.20) over the five-year period and slashed their permitted return on investment from about 3.75% to 2.96%, potentially lowering dividends.
The regulator believes the settlement will allow water companies to deliver adequate infrastructure and service improvements. At the same time it wants to reduce their ability to “outperform” financially, or carry out the investments for less money, which under the complicated regulatory system means they could retain a portion of the excess for distribution to shareholders.