Ofwat puts "credible case" to CMA for getting tougher on disputing firms

Ofwat has proposed to the Competition and Markets Authority (CMA) that the companies currently appealing their price determinations could be given a still tougher determination.

In a note suggesting areas the authority may want to consider in its case assessments, Ofwat told the CMA that there was a “credible case for increasing the challenge” for companies appealing their decision. To support its point, the regulator listed factors including:

• its new connections forecasts being too high in light of the “severe economic recession” likely to result from Covid;

• real-price adjustments for energy and labour costs;

• greater scope for efficiency challenge on the Water Industry National Environment Programme (WINEP); and

• recent evidence on aspects of returns and financing.

Elsewhere in the note, Ofwat stressed its determination was a package in the round, and that adjustments made to particular parts could have knock-on effects for other parts. For instance: “If the stretch on outcomes is reduced or there is an increase in cost allowances for achieving those outcomes, there is a case to revisit whether frontier shift assumptions should be higher.”

Ofwat also published two papers expanding on answers to questions asked CMA panel members: one on underspending and efficiency, and the other on the cost of the base level of service.