Ofwat has said that it stands by its decisions in the 2019 Price Review and the reality is that the disputing companies’ claims that the regulator has not met its statutory duties are “disagreements as to the merits of our decisions dressed up as legal points.”

The water sector regulator was commenting in a raft of papers Ofwat submitted to the Competition and Markets Authority (CMA) in response to the statements of case put forward by Anglian Water, Bristol Water, Northumbrian Water and Yorkshire Water.

The disputing companies have argued in their Statement of Case that Ofwat’s PR19 Final Determination (FD) for the period 2020-25 is not financeable, and that it introduces ‘short-term fixes’ that weaken long-term financial viability.

Anglian Water - Ofwat decision "effectively applying a short-term solution for a long-term problem"

Flagging up individual company arguments, Ofwat said that in particular, Anglian Water had challenged Ofwat’s decision to advance revenues of £80 million from future price controls. Anglian Water has stated that this “was effectively applying a short-term solution for a long-term problem – it stores up problems for future price controls.”

Northumbrian Water argues the use of financial levers is not a sustainable solution as this “effectively brings forward cash flows from the future – all else equal – defers the financeability problem into future price control periods” and “risks future financial resilience”.

Yorkshire Water has claimed that “the acceleration of revenue from future control period– whether in the form proposed by Ofwat or using some other lever – to boost short-term interest cover is not a sustainable long-term fix for financeability”.

The regulator has launched a strong defence of its decisions and the PR19 process itself, saying that it had conducted PR19 “in the right way” and that throughout PR19 “we have been motivated by all of our statutory duties, protecting customer interests and finding the right outcome in light of the duties in the round.”

PwC analysis "PR19 company financial models .., do not contain "sufficient data to conduct meaningful long-term financeability analysis"

As part of its submissions to the CMA, which is now conducting a re-determination of the four companies' FD decisions, Ofwat also commissioned consultancy PwC to consider the evidence on whether the PR19 FD has weakened the long-term financial viability of the UK water sector.

PwC’s analysis has focussed on the five year period from April 2025 to March 2030 on the basis that any time after this period is subject to greater uncertainty because regulatory approaches and methodologies evolve over time, and is out of scope for the analysis.

In addition, the PR19 company financial models published on Ofwat’s website do not contain "sufficient data to conduct meaningful long-term financeability analysis", PwC added.

PwC said the findings indicate that the revenues advanced by Ofwat in PR19 from future price control has “considerably less impact” on financeability ratios than the underlying long-term rise in the ratios through the transition to CPIH indexation and the expected evolution of the cost of debt. CPIH is the measure of the annual rate of UK consumer price inflation that includes owner occupiers' housing costs.

The consultancy has concluded that Ofwat’s use of its regulatory financeability levers in the PR19 FD has not negatively impacted the long-term financeability of the water sector.

Ofwat has once again set out in its submission to the CMA that from the initial development of the PR19 methodology in 2015, it had been clear with companies that the price review was “not going to preserve the status quo.”

Setting the context for the CMA, Ofwat said the sector faces profound challenges, such as climate change, population growth and shifting customer expectations, commenting:

“To be in a better place to provide reliable and affordable services against these challenges, there is a need for the sector as a whole to strengthen its operational performance. Whilst there have been examples of good operational performance, there have been notable failures in places. The sector also has a reputational challenge if it is to gain customer trust.”

Ofwat has told the CMA:

“Thirteen companies have accepted this challenge; four have not. We have reviewed each of the statements of case presented by Anglian Water, Bristol Water, Northumbrian Water and Yorkshire Water.

“These companies continue to believe that customers should pay more and receive less than our final determinations settled for them, and less than other companies are now undertaking to deliver.

“In many cases, the arguments and evidence that the disputing companies present mirror their submissions during the PR19 process, all of which we thoroughly reviewed in making our final determinations.”

“We stand by our determinations.”

Click here to read Ofwat’s paper Reference of the PR19 final determinations: Introduction and overall stretch on costs and outcomes – response to cross-cutting issues in companies’ statements of case

Click here to read the PwC Analysis Long-term financeability trends in the UK water sector