Six to seek improved settlements at the CMA

Six companies, serving more than half of all households in England, will appeal their PR24 final determinations at the Competition and Markets Authority (CMA).

On decision deadline day (18 February), Anglian Water, Northumbrian Water, South East Water, Southern Water and Wessex Water joined Thames Water – which had already announced its intention – in seeking a redetermination.

All other firms joined those who had already responded positively – Pennon, Severn Trent, United Utilities and Welsh Water – in accepting their settlements. Some issued adjacent news, such as that from Affinity Water that its shareholders had agreed to inject £150m of equity before 31 March 2026 to support the investment plan. 

Growth narrative

Water UK highlighted that Ofwat’s settlement left the appellant companies £7bn short. Chief executive David Henderson pointed out in his narrative that this is a particular problem because the industry needs to support the Government’s flagship growth mission.

He said: “Water companies need to invest billions to strengthen and expand infrastructure to support economic growth, secure our water supplies and end sewage entering our rivers and seas. Although many water companies can live with Ofwat’s decisions, an unprecedented six – serving the majority of customers in England – feel that they have no choice but to appeal to the CMA. Companies hope it will overturn Ofwat’s decisions so they can get on with the job of helping deliver the Government’s overriding national priority – economic growth.”

A concern for customers

The Consumer Council for Water argued the appeals drive price uncertainty for customers and could entrench affordability issues. Steve Hobbs, senior policy lead for regulation, said: “The customers of these six water companies now face a long and anxious wait to see whether they could be hit with even steeper bill rises at a time when at least two in five households say they will struggle to afford the existing increases.

“Three of the six water companies which have appealed have no plans to end water poverty by 2030, which means thousands of their customers still face being unable to afford their bill – whether these appeals are successful or not. It’s not fair or acceptable that so many customers should be left to worry about whether they will be able to afford something as essential as water.”

The process

Ofwat must now formally make references to the CMA. Each company will set out its reasons for appealing in a Statement of Case.

Ofwat’s senior director for the price review, Chris Walters, said: “We will be re-stating our case as part of this process. Our PR24 final determinations unlock a quadrupling of investment by the sector. This will accelerate the delivery of work to deliver cleaner rivers and seas – as well as securing long-term drinking water supplies for customers.

“Final determinations were based on a robust examination of all funding requests made by companies to ensure every pound of customer bills provides value for money, delivers real improvements and enables the sector to attract the investment it needs.”

The initial timetable is six months, but can be extended to 12.

Ofwat’s final determinations will come into effect from 1 April 2025 for all companies anyway, with 2025-26 bills reflecting the regulator’s decisions. If a company’s appeal leads to a change in its price controls, this will be reflected in bills in subsequent years.

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Analysis: reduced regulatory stability, totex shortfalls and tough targets – by Verity Mitchell

One of the terms of reference of the Independent Water Commission (IWC) led by Sir Jon Cunliffe is to “ensure the water industry regulatory framework delivers long-term stability and enables the privatised water industry to attract investment, maintain resilient finances and contribute to economic growth”.

There is a strong feeling within the water industry and the rating agencies that there has been a reduction in stability. The severity of regulatory efficiency targets, disallowed infrastructure enhancement allowances and a low allowed return relative to the empirical evidence of the recent cost of new debt, they believe, will inhibit an industry that is poised to create jobs, build infrastructure and attract external investment to the UK.

Any water company that feels particularly short-changed from PR24, which will need to raise both debt and equity capital, may therefore sense a fair following wind; the existence of the IWC’s scrutiny might help deliver a better outcome from the CMA than at previous price reviews.

S&P said on 20 February that “the amount of raised capital will fall short of Ofwat's assumptions, whose notional company gearing of 55% is expected to remain far from any actual company's gearing, which is projected to be significantly above this over AMP8.”

Of the six companies that asked for a referral to the CMA, four have significant totex shortfalls compared to their requests, and two have been set aggressive performance targets which increase the likelihood of significant penalties:

Anglian Water

• Allowed totex of £10,971m, a shortfall compared to its revised business plan of 2%. 

• Equity injection needed, according to Ofwat, of £1,523m. 

• At the FD, Ofwat said: “Anglian Water's performance lags behind most other companies in the sector, only meeting targets for five of the 12 key performance indicators.” Anglian has been set stiff performance targets: a 30% reduction in pollution incidents; a 15% reduction in the use of storm overflows; a 13% reduction in leakage; and a 24% reduction in internal sewer flooding.

Northumbrian Water

• Allowed totex of £6,153m, a shortfall compared to its revised business plan of 3%. 

• Equity injection needed, according to Ofwat, of £871m. 

• It too has challenging performance targets: a 28% reduction in storm overflow spills; a 10% improvement in time lost for supply interruptions; a reduction in sewer collapses by 12%; a 7% reduction in leakage; and reduced nutrient pollution.

South East Water

• Allowed totex of £1,821m, a shortfall compared to its revised business plan of 13%. 

• Equity injection needed, according to Ofwat, £132m. South East received a £17m equity injection in December 2024.

Southern Water

• Allowed totex of £10,971m, a shortfall compared to its revised business plan of 11%. 

• Equity injection needed, according to Ofwat, of £1,226m. Board has announced its intention to raise £900m of new equity.

Thames Water

• Allowed totex of £20,464m, a shortfall compared to its revised business plan of 16%. 

• Equity injection needed, according to Ofwat, of £2,800m.

Wessex Water

• Allowed totex of £4,231m, a shortfall percentage compared to its revised business plan of 17%. 

• Equity injection needed, according to Ofwat, of £512m.