Ofwat has today published a series of commitments that Thames Water will agree to comply with after it lost two investment grade credit ratings; the company breached its licence following the credit rating downgrades by Moody’s on 24 July and S&P on 31 July.

All water companies must maintain two investment grade credit ratings as part of their licence to operate from two different credit rating agencies, other than where Ofwat provides written agreement to maintain only one issuer credit rating which is investment grade.

A consultation on the commitments, ahead of a final decision, is now live and the deadline for responses is 5pm on Friday 16 August.

The commitments, subject to consultation, are built around four key elements:

• The appointment of an independent Monitor to report on the company's progress, including against its transformation plan. The independent Monitor will report back to Ofwat frequently and be entitled to access to company information;
• Developing and delivering a suitable operational business plan to achieve turnaround;
• Taking the steps required to deliver an equity raise;
• New non-executive director board appointments.

The consultation document states:

“Thames Water commits to use all reasonable endeavours to raise substantial equity investment into its business (the 'Equity Raise'), which will be underpinned by the development and implementation of the Company Business Plan. Thames Water has already commenced the initial stages of the Equity Raise and commits to implement the process of the Equity Raise, and other necessary processes, on a timetable and to milestones agreed with Ofwat, and will evolve the Equity Raise process appropriately.”

“Thames Water commits to appoint a further two appropriately experienced independent non-executive directors to its Board and any Board sub-committee providing oversight of the Equity Raise as soon as reasonably practicable. Thames Water will also identify a member of its senior leadership team with appropriate experience and authority to oversee and monitor the Company's compliance with the undertakings, and to liaise with Ofwat and a monitor in relation to it.”

Ofwat says the commitments will remain in place until Thames Water regains two investment grade credit ratings.

David Black, Chief Executive of Ofwat, said:

"We are clear that Thames Water needs to remedy its licence breach, turnaround its operational performance and secure backing from investors to restore its loss of investment grade credit rating.

"These enforceable commitments will include our putting an independent Monitor into the business, to report back to us on what is happening to drive meaningful change in performance, and to ensure appropriate expertise is added to their Board.

“We will continue to monitor progress very closely and will not hesitate to take any further action if necessary."

Under section 18 of the Water Industry Act 1991, where Ofwat is satisfied that a company holding a licence is contravening, or likely to contravene, any condition of its appointment, the regulator has a duty to make a final enforcement order for the purpose of securing compliance.

An exception to this duty to enforce is where Ofwat is satisfied that the company has given, and is complying with, an undertaking “to take all such steps as it appears to Ofwat for the time being to be appropriate for the purpose of securing or facilitating compliance with the requirement in question.”

Click here to download the consultation document