Ross: coasting on the back of Brexit could damage legitimacy

July 6, 2016

Ofwat chief executive Cathryn Ross has fired a shot across the bows to water companies to do everything in their power to keep prices down for customers should Brexit result in diverging fortunes for customers and investors.

 

Speaking at Marketforce’s Water Market Reform conference on Monday, Ross (pictured) pointed out the economic scenario raised by the Bank of England among others of higher inflation, lower interest rates and lower growth. She said: “I want to point out now that that scenario could pose a very significant challenge for the water sector. A challenge of customer legitimacy. Because it is a scenario in which water companies could remain a very attractive investment proposition, water companies and their investors could enjoy substantial financial outperformance, at precisely the same time as their customers become poorer and find it harder to pay their bills.”

 

She told companies to plan how to avoid customer trust and confidence being damaged should such a scenario materialise, referring specifically to them ensuring “that there is no let up in their search for totex efficiencies, for better ways of using resources, for new and better ways of doing things.” She added: “To be completely clear, I should also say that I see no reason at all to change the wider policy framework for our regulation and specifically for PR19 that we published back in May. We remain of the view that markets have great potential to inform, enable and incentivise companies to achieve new frontiers in efficiency.”

 

Elsewhere Ross said water was relatively well protected from Leave repercussions in the following areas: 

Politics – Ofwat is independent and while government policy does have an impact on the sector “I don’t see the drivers for policy change being noticeably different today than they were a few weeks ago…we only recently saw the enactment of the Water Act, in 2014, and the delivery of the Wales Water Strategy, which paves the way for reforms that will keep us busy for several years – we were not ‘due’ a new policy framework.”

 

Legal framework – “There is no European Single Market in water. There is no Europe-wide market architecture. No EU rules on access pricing. Or capacity allocation,” Ross observed. And while environmental protection is linked to EU law, “most of that EU law has been transposed into UK law. So it depends…on the appetite of the UK government to row back on environmental regulation that forms part of UK law, but which has its origins in the EU. But right now, and until any change is agreed and implemented, the companies’ obligations are what they are.”

 

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