Wessex resists a tighter financial ring fence as rest consent

All water companies except Wessex Water have now consented to, and had, licence amendments by Ofwat to strengthen the regulatory ring fence on finances.

After extensive consultation dating back to 2018, 16 firms consented to the changes, made under Section 13 of the Water Industry Act 1991. Ofwat said the changes “ensure that the regulated company maintains sufficient financial, management and other resources to enable it to carry out its water and sewerage services in a sustainable manner, and it protects the regulated company from the activities of other entities such as other group companies.” The modifications include provisions to ensure firms maintain an investment grade credit rating at all times, restrict pay-outs to shareholders if the company is in financial distress, and inform Ofwat when a change of control is possible.

Wessex refused to consent to the changes. Ofwat reported Wessex “does not agree that it is necessary to have inflexible or pre-scripted solutions to deal with concerns regarding a company’s financial resilience. It says it has been the practice of the board of YTL to withhold dividend payments where that could lead to a credit rating downgrade; and that this demonstrates that the protections and assurances that Ofwat seeks to obtain through licence modification are already in place through the basics of good governance and stewardship”.

The regulator responded: “We believe that having protections in the licence is an important safeguard for customers, and we are disappointed that Wessex Water has not given its consent. We will consider how to proceed.”