UK water quartet appeal Ofwat’s regulatory review

Four UK water companies have asked the country’s Competition and Markets Authority to look into regulator Ofwat’s pricing review, which is due to begin in April.

Earlier this week, Yorkshire Water signalled its intention to ask the CMA to review the new controls, which it said in a statement provided “long term risks to its resilience and customers would be at a level which it cannot accept”. This included, it added, “poorly designed penalty measures” which ensured the company would have to focus on short-term rather than long-term investment.

Yorkshire Water is owned by a consortium including Singaporean sovereign wealth fund GIC (33.6 percent), Corsair Capital (30.3 percent) and DWS (23.4 percent).

Infrastructure Investor understands that the 16 water companies had a deadline of 15 February to appeal against Ofwat’s December review and that Yorkshire Water was joined on Friday by Anglian Water, Bristol Water and Northumbrian Water.

Anglian Water said in a statement that its jurisdiction faces “unique challenges” and its board is therefore asking the CMA to consider if “the right balance has been struck between bill reductions and investment” through Ofwat’s decision.

In September, Anglian Water was noted by Ofwat as the leader in the sector for the second year running in terms of customer satisfaction. The gong merited the company an extra £16 million ($20.8 million; €19.2 million) in its price review. The company’s largest shareholder is the Canada Pension Plan Investment Board (32.9 percent ). Its other shareholders are IFM Investors (19.8 percent) First Sentier Investors (15.6 percent), Abu Dhabi Investment Authority (16.7 percent) and a consortium between Dalmore Capital and UK pension group GLIL (15 percent).

Bristol Water said in a statement that although it largely agrees with Ofwat, “there are some technical issues, mainly around how to finance our company, that we don’t agree with”.

Bristol Water was the sole complainant of Ofwat’s previous price review in 2015, although the regulator’s decision was upheld by the CMA. The company is owned by iCON Infrastructure Partners and Japan’s Itochu Corporation.

Northumbrian Water, owned by Hong Kong-based CK Infrastructure, said in its statement that Ofwat’s review “falls well short of what customers clearly stated were their priorities and … would adversely impact the long term financial resilience of the company”. It added that its referral to the CMA is the “only redress” it now has.

Of the 12 companies that are not appealing against Ofwat’s decision, only Thames Water issued a statement. “After detailed consideration, the Thames Water Board has accepted Ofwat’s final determination of the company’s business plan for 2020-25,” it said. Although a referral to the CMA was “carefully considered”, the company decided against this as it would lead to “significant management distraction”. Thames Water is owned by 10 international infrastructure fund managers and pension funds. Its largest stakeholder is the Ontario Municipal Employees Retirement System, which currently owns 31.8 percent of the company.

In the same report in September that praised Anglian Water, Thames Water was found to be among the bottom performers, taking last place for the fourth year running. It was made to return £100 million to customers by Ofwat as a result.

Ofwat said in December that its 2020-25 price controls would signal a “transformation of the water industry”. It cut allowed returns from the sector to 2.96 percent and ordered companies to reduce levels of debt and customer bills by about £50 over the period. The review is scheduled to result in combined investment by the 16 companies of £51 billion.

The referral to the CMA by the four companies is unprecedented, with previous regulatory reviews attracting only isolated complaints. Infrastructure Investor understands the review by the CMA could take around six months and that the current price plans will remain in place for those companies until a decision has been made.

Ofwat had not responded to a request for comment by the time of publication.