The Competition and Markets Authority has published its provisional findings on Bristol Water’s appeal to the CMA following the water company’s decision to reject the Ofwat’s final determination on price controls for the period 2015 to 2020, resulting in an increase of just £20 million.

The Competition and Markets Authority has published its provisional findings on Bristol Water’s  appeal to the CMA following the water company’s decision to reject the Ofwat’s final determination on price controls for the period 2015 to 2020,  resulting in an increase of just £20 million. The CMA assessed expenditure on wholesale activities (largely the costs of abstracting, storing, treating and transporting water and the associated investment requirements) for Bristol Water of £429 million. This compared with Ofwat’s assessment of £409 million and Bristol Water’s own business plan estimate of £537 million.

Bristol Water had argued that Ofwat’s determination would not leave it with sufficient funds to run the business and invest and that higher prices were needed.

Bristol Water had estimated the impact of its plan would be to reduce household customer bills on average by around 6% for the period 2015 to 2020 before the impact of inflation (measured by the RPI).

After a detailed assessment of Bristol Water’s costs and expenditure requirements, the effect of the CMA’s provisional findings is that Bristol Water’s household customer bills should fall on average by 17% before inflation for the period 2015 to 2020. This is in comparison to Ofwat’s original determination that household bills would fall on average by 19% before inflation. This represents a small increase in the prices previously set by Ofwat.

Bristol Water said that early indications from the provisional findings suggest that the CMA has tempered the sharp reduction in bills set by Ofwat, recognising its submissions around the costs required to maintain the quality of service for customers.

Bristol Water says provisional findings are "positive in some areas"

 “Following four months of challenge by the CMA panel, the provisional findings are positive in some areas. We will continue until the conclusion of the process on 3 September to ensure we can deliver what our customers want – a reliable and quality water supply – at an appropriate bill level,” said Bristol Water’s CEO Luis Garcia.

The CMA’s figure is a provisional estimate which may be subject to further adjustment when it issues its final determination, which it is required to do by 3 September 2015.

CMA Inquiry Group Chairman, Anne Lambert said:

“We are very conscious of the effect our provisional findings would have on customer bills. Our provisional findings would result in substantial reductions in bills, as compared with Bristol Water’s plans, although they involve a small rise above the price limits set by Ofwat.”

The CMA said the provisional decision was taken after a careful review of the needs of Bristol Water’s customers and the levels of investment required to maintain quality and reliability of supply.

As part of the process, the competition watchgdog provisionally rejected several projects proposed by Bristol Water which would have increased its expenditure – and ultimately bills – because it did not consider they were fully justified and in the interests of customers.

However, the CMA provisionally agreed that a small increase from the Ofwat determination was necessary to maintain the quality of service Bristol Water provides to its customers.

The CMA has also provisionally decided that Bristol Water’s wholesale cost of capital is 3.65%, versus Ofwat’s figure of 3.60% and Bristol Water’s figure of 4.37%.

The decision has been welcomed by the water industry regulator. An Ofwat spokesperson said:

“We welcome the publication of the Competition and Market Authority’s draft decision. We are committed to protecting customers and ensuring efficient companies can finance their provision of these vital public services.

 “We will read this report carefully and look forward to working constructively with the CMA in responding to this draft decision in August.”

The CMA is now inviting comments on its provisional findings – deadline for responses is  27th July.

Click here to read a summary of the CMA's provisional findings.