CMA Publishes Provisional Conclusions On Ofwat’s Water Price Controls
The Competition and Markets Authority (CMA) has published the provisional findings of its review of Ofwat’s proposed water price controls for 2020-2025, which were published in December last year, setting out the total amount that water companies can charge for water over the five-year period.
The CMA was asked by four companies – Anglian, Bristol, Northumbrian and Yorkshire – to redetermine the price controls because they felt that insufficient funding had been provided to deliver plans including expenditure to improve resilience, as well as the belief that the cost of capital had been set too low to provide a reasonable level of return on investment.
It was also thought that Ofwat had failed to recognise the link between costs incurred and the delivery of higher levels of service, while not enough weight had been given to customer views and there were increased levels of financial risk to companies.
According to Ofwat, its price review was intended to challenge companies and drive them to deliver more improvement in service quality, as well as saving money by becoming more efficient, savings that could then be passed onto customers, while substantially improving performance levels at the same time.
The CMA did reach similar conclusions to Ofwat on many of the issues that were brought to light, finding that the four companies should be set challenging performance targets while keeping customer bills low. But it has provisionally provided more funding for some projects to address challenges to resilience in line with climate change and growth in demand, as well as more funding to support a reduction in leaks from water networks. It has also provisionally rebalanced the ways that suppliers are incentivised to promote improvements in efficiency and service quality more effectively.
Chair of the CMA Inquiry Group Kip Meek said: “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”. He went on to say “We have sought to ensure that our provisional findings strike the right balance between bill reductions and the interests of current and future customers in resilient infrastructure, particularly in the face of climate change. We consider our position is balanced and supported by the evidence before us. We welcome further input before finalising our redeterminations.”
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