Leading ratings agency Moody’s is warning that Ofwat’s drive to introduce more competition between suppliers could threaten the creditworthiness of the water companies.

A report in the Financial Times late last night said that tension between the City and Ofwat over the future of the industry has “ratcheted up” after Moody’s spoke out against the water regulator’s drive to introduce competition between suppliers.

The rating agency warning comes in a report by Moody’s suggesting that that the introduction of competition could threaten water companies’ creditworthiness.

The issue of competition will be addressed in the delayed Water White Paper, now not expected until the autumn, which looks set to introduce major changes to how the sector is regulated.

According to the Financial Times, Regina Finn, chief executive of Ofwat, told the newspaper earlier this year that “businesses were driven “mad” by their current reliance upon a single supplier.”

Last month Ofwat published a paper setting out potential changes to the water sector’s structure as a prelude to the introduction of competition.

Neil Griffiths-Lambeth, senior credit officer at Moody’s said that investors are becoming increasingly concerned about the possible consequences of the Ofwat review for the creditworthiness of the water companies.

 This week utility consultancy Oxera has had to retract on comments in its report on the introduction of competition in the water industry. The Oxera report had stated that the Cave Review found that no cost reductions could be achieved from the current regulatory regime and that competition reform would guarantee success. Martin Cave said that his findings had been misunderstood and the assumptions made in the report were published without his consultation.