Water companies prepare to take Ofwat to competition regulator

Ofwat is facing an unprecedented revolt among water companies with a record number of privatised regional monopolies said to be considering taking the regulator to the competition authorities.
It is understood that water bosses are considering a mass show of dissent towards Ofwat and a challenge to the regulator’s interim rulings on price-setting that have knocked back the companies’ demands for huge increases in customer bills to fund upgrades in networks after years of underinvestment.
Senior sources in the industry have confirmed that water bosses are “fired up” for a confrontation with Ofwat after David Black, the chief executive, held a tough line with companies’ submissions for the next five-year funding settlements through to 2030.
The companies are going through renegotiations after draft settlements this summer prior to a final determination scheduled for before Christmas. However, the signals are that the gulf is so large between many of the companies and the regulator that there could be a record number of the 20 regional and local companies prepared to refer their cases and take Ofwat to the Competition and Markets Authority (CMA).
The companies had demanded an average increase in bills of one third but were told by Ofwat to make do with a rise of little over one fifth.
In an irritable settlement five years ago when Ofwat was trying to force down customer bills, four water companies so deeply disagreed with the final pricing determination that they took the regulator to the CMA.
Informed sources indicate that more than double that number could refer Ofwat to the CMA this time.
Feelings are running high in the industry as bosses argue that the public outrage over poor records of pollution, leakages and customer service is in part the fault of Ofwat for not allowing them enough money to invest. The companies put forward demands for £105 billion to be partly funded by billpayers but Ofwat knocked that back by £17 billion to £88 billion, which would still be a record.
Ofwat has argued the companies waste too much money and need to be more efficient. It also argued that the companies gamed the system to make excess profits for their shareholders through dividend payments and to pay unwarranted bonuses to executives.
Water UK, the lobby group representing the private monopolies, has been sharply critical of Ofwat’s decision-making in the funding settlement, saying the regulator was blocking reform. “Investors are telling us that they need Ofwat to change its approach,” David Henderson, chief executive of Water UK, said in a recent statement.
“Unless the right conditions to invest are put in place, our environment and our economy will pay the price. We cannot delay upgrading and expanding vital infrastructure any longer and need Ofwat to reconsider its approach.”
Black has previously said such attacks on the regulator are to be expected. However, the rift between industry and the regulator appears never to have been deeper including trans-Tasman tetchiness between the recently appointed Henderson — who worked in Australian politics before arriving in the UK with a job at No 10 and subsequently going into lobbying — and Black, an economist who worked at the New Zealand Treasury before coming to Britain, joining Ofwat in 2012 and becoming interim chief executive in 2021 and chief executive in 2022.
The chairs of the bodies have had previous disagreements. Ruth Kelly, chairwoman of Water UK, is a former Labour minister now with a string of corporate appointments who when she was transport secretary crossed swords with Iain Coucher, the chairman of Ofwat, when he was chief executive of Network Rail.
Ofwat said it had had a “diverse” response from the companies and their investors as well as consumer and environmental groups. “We will consider all of these responses carefully,” a spokesman said. “The water companies can then decide to accept our final determinations on their price control settlements or refer them to the CMA. This is a normal part of the regulatory process.”