An Independent Group of experts appointed by the Competition and Markets Authority (CMA) has released its provisional redeterminations regarding water price controls for five water companies that disputed the decisions made by the water regulator, Ofwat. The CMA's review has resulted in a sharp reduction in the additional price increases originally requested by the companies, with almost 80% of their demands being rejected.
The five water companies—Anglian Water, Northumbrian Water, South East Water, Southern Water, and Wessex Water—serve more than 7 million customers and generate a combined revenue of approximately £4 billion. They had collectively requested an additional £2.7 billion from customers to fund various projects, arguing that the original price determinations by Ofwat left them unable to meet regulatory requirements. However, the CMA’s provisional decision has agreed to a much smaller £556 million, representing just 21% of the requested sum. This funding is expected to result in an average 3% increase in bills, on top of the 24% increase already planned under Ofwat’s original determinations.
Key points of the CMA’s provisional redeterminations:
- The companies' requests for new activities and projects beyond those already approved by Ofwat were largely rejected.
- An average additional increase of 3% in customer bills is anticipated, leading to an overall increase of 27% compared to current charges for customers of the disputing companies.
- The additional funds allocated are aimed at improving supply resilience, reducing pollution, and ensuring the companies can meet legal obligations related to drinking water quality.
- Investor returns were modestly adjusted to reflect increased financing costs due to rising interest rates, ensuring companies can secure the necessary investment for long-term improvements.
While the companies had argued that the original price control decisions left them unable to secure sufficient funding, the CMA emphasized that customer interests remain a priority. The Group carefully balanced the companies’ financial needs with minimizing the impact on household budgets, which have already been under strain from rising living costs.
Kirstin Baker, Chair of the Independent Group, stated, “We’ve found that water companies’ requests for significant bill increases, on top of those allowed by Ofwat, are largely unjustified. We understand the real pressure on household budgets and have worked to keep increases to a minimum, while still ensuring there is funding to deliver essential improvements at reasonable cost.”
What this means for customers:
The provisional redeterminations indicate a notable reduction in the expected bill increases for customers of the five water companies involved. For instance:
- Anglian Water customers, originally facing an average bill of £649, will see a more modest increase of £599.
- Northumbrian Water’s customers will pay £495 on average, compared to the requested £515.
- South East Water customers, initially facing a £322 bill, will pay £286 on average, a 4% increase over Ofwat’s decision.
- Southern Water customers, originally facing an average bill of £710, will see a decrease to £638, marking a 3% increase compared to Ofwat’s decision.
- Wessex Water customers, who were facing a possible bill of £642, will now pay £622, reflecting a 5% increase compared to Ofwat’s decision.
The CMA's decision to reduce the additional price hikes aims to ensure that the companies have enough funding for essential improvements, such as addressing environmental concerns and enhancing service resilience, without placing excessive burden on customers.
