Ofwat has told the Competition and Markets Authority that the submissions made to it in the current PR19 water companies’ appeals have ”increasingly been dominated by the well-resourced company and investor voice, on occasion to the exclusion of other perspectives.”

The water sector regulator was commenting in its detailed supplemental 54 page final response to working papers on the cost of Capital published by the CMA in January.

Ofwat said there was “one over-arching background perspective” which it urged the CMA to keep continuously in mind: the objective and interests of consumers. According to the regulator:

“At this relatively late stage in the redetermination process, the submissions made to the CMA have increasingly been dominated by the well-resourced company and investor voice, on occasion to the exclusion of other perspectives.

“The CMA has received numerous submissions and letters putting forward that perspective, both in writing and at the roundtable. These all, unsurprisingly, urge the CMA to make allowances in their favour. At earlier stages in the process, the CMA held third party hearings with consumer bodies and they have made some written representations.

“ Nevertheless, as the focus of exchanges has narrowed to concentrate on highly technical matters, there is a risk that the voice of the consumer is drowned out. There is accordingly a regrettable asymmetry of representation and perspective during this stage of the process.”

The water sector regulator also explained that as part of its role, Ofwat seeks to put forward “an objective and expert view” to support the work of the CMA, consistent with the position that “we understand best meets our statutory duties in the round.”

The response points out that the CMA is “bound by the same duties” and Ofwat would “urge that CMA to carefully consider the issues and to ensure the interests of customers are given adequate voice and appropriately protected in its consideration of the duties in the round.”

Referring to the initial submissions by the disputing water companies on the cost of capital working papers, Ofwat said the companies had claimed that the CMA had proposed a material departure from its provisional findings by reducing the cost of equity aiming up adjustment from 50 basis points to 25 basis points.

The response says:

“That may well be a material change, but only from a conclusion that was always and expressly ‘provisional.’

Ofwat goes on to point out that it is “dwarfed” by the extent to which the CMA’s current proposals represent a departure from CMA’s conclusions in the recent appeal by NATS En-route Ltd (NERL) against the Civil Aviation Authority’s RP3 price control decision for the period 1 January 2020 to 31 December 2024.

According to Ofwat “in comparison with NERL RP3… there continues to be a significant differential.”

“Our response highlighted that the provisional findings included decisions which themselves included a number of material departures from the conclusions drawn in the CMA’s recent decision in the NERL RP3 reference, without a rationale for those changes,” the regulator said.

“These issues led to a proposed allowed return that was materially above the return allowed in our PR19 final determinations, above the level that is reasonable based on our assessment of relevant data.”……

“The disparity between NERL and the current case remains, in our view, inadequately explained or justified.”

Click here to read Cost of capital – Ofwat's final response to working papers