Yorkshire Water welcomes regulator’s final decision on price controls

The Competition and Markets Authority (CMA) has published its findings on the price controls for four water companies for 2020-2025 – including Yorkshire Water.

In December 2019, water utilities regulator Ofwat published its price controls setting out the total amount water companies can charge for services in 2020-25.

But in March 2020, Yorkshire Water, together with Anglian, Bristol and Northumbrian Water asked the CMA to allow them more cash for necessary investment by re-determining their price controls.

An independent group appointed by the CMA to look into the redetermination appeal has now reached its decision and says it will, “allow sufficient investment to ensure bill payers receive a sustainable quality of service.”

The Group says it has:

  • set a headline rate of return to investors of 3.2%, compared with 4.67% in the previous price control period, approximately 3.6% proposed by the water companies and 2.96% proposed by Ofwat
  • provided increased allowances to pay for improvements in some priority areas such as security of supply and leakage
  • maintained strong incentives on the companies to improve cost efficiency and service quality
  • placed the companies on a stronger footing by reducing their exposure to future costs that may be beyond their control

The return to investors will be 32% lower than the last price control period, 9% lower than the Group’s provisional findings and approximately 12% lower than the rate proposed by the water companies.

Although Ofwat had proposed an even lower headline return to investors, it was also proposing to increase revenues for three out of four of the companies by bringing forward revenue from future price control periods, and to pass this charge to bill-payers. The Group has reversed this adjustment.

The Group considers the return set out in its determination is, “the minimum that is sufficient to allow the companies to finance their activities and invest in long-term infrastructure.”

It has concluded the companies will together need to spend more than Ofwat had estimated to carry out essential operations – but if the companies do not spend all of this extra allowance on providing services, customers will get more than half this money back.

As a result of the determination, customers will be spending, on average, £34 less per year on their bills than they were paying in 2019/20.

It is a smaller reduction than proposed by Ofwat, but bills will be slightly lower than set out in the CMA’s provisional findings, in September 2020.

Kip Meek, chair of the Group, said: “In coming to our decision, we have sought to balance keeping bills low with the need to maintain a good quality of service and to invest in critical infrastructure for the future.

“Our decision means customers will be paying, on average, £34 less per year for their water than they did in 2019/20.”

A Yorkshire Water spokesman responded: “Investment by water companies can play a critical role in response to climate change and can also help deliver economic recovery and we now have a conclusion which will help us to play our part.

“We can now draw a line under the last price review and start to work collaboratively with Government and regulators to ensure we restore the balance to the sector and deliver long term resilience whilst protecting customer interests.

“It is also time to look at the regulatory process and see if we can make it simpler and more effective. We are sure Ofwat shares this aspiration.”