Customer support must drive CMA decisions

Steve Hobbs - Senior Policy Manager at CCW
Steve Hobbs – Senior Policy Manager at CCW

As the Competition and Markets Authority (CMA) prepares to make final decisions over four water companies’ future plans, the Consumer Council for Water (CCW) warns that customers must not lose out on the service levels and investment they value most. Steve Hobbs, Senior Policy Manager at CCW, explains.

Four water companies in England – Northumbrian Water, Yorkshire Water, Anglian Water and Bristol Water – appealed to the CMA in April, asking it to re-examine the regulator Ofwat’s decisions on what water companies are allowed to charge customers in the period 2020-25, and what investments and service improvements customers can expect to see in return.

But while companies have the opportunity to appeal to the CMA, customers don’t, and that’s where the role of CCW comes in. As the voice of water consumers, we provided both written and verbal evidence to the CMA earlier this summer, urging it to take customers’ views into account to make sure that customers aren’t disadvantaged by its final decisions.

With the CMA due to make its provisional redeterminations in September and final decisions at the end of the year, what do we expect to see for customers of the four companies that have appealed?

For us, the key factor for the CMA to consider is what customers think of the plans, and our research puts us in a unique position to comment. Throughout the whole price review process, we have advocated for all plans and decisions to be strongly supported by customers, and we carried out our own independent research into customer acceptability of Ofwat’s draft determinations, which were announced last year.

When Ofwat set its targets for companies on issues including leakage, sewer flooding and resilience (known as performance commitments), we were pleased to see that these had been based on evidence of what customers expect their water companies to achieve. Our research showed that a high number of customers found Ofwat’s draft determinations acceptable. As Ofwat’s final determinations offered service improvements that were not significantly different, we would not want the CMA’s decisions later this year to weaken or compromise these commitments in any way.

Similarly, customers told us that they would support water companies making more investments to safeguard the resilience of services in the long term than was allowed in Ofwat’s final determination, but we think this should only be allowed if the costs and business case for extra investment can be fully justified by the company.

In fact, the issue of what costs and expenditure Ofwat has allowed for in its final decisions – and what level of financial efficiency it expects them to achieve – is what sits at the heart of the majority of the four companies’ disputes. From our annual Water Matters tracker research, we know that water companies have far to go to improve customers’ satisfaction with the value for money they feel that they receive. With many companies comparatively inefficient in the past, we feel that it was right for Ofwat to challenge them hard on this point, and we look to the CMA to determine whether Ofwat’s methodology and decisions were correct and do in fact enable companies to deliver these commitments.

Relatedly, the cost of raising finance – known as the cost of capital – has been hotly disputed by the appellant water companies, who claim that the cost of capital has been set too low. An independent report we commissioned from economic consultants, ECA, suggested that companies should be able to finance their plans efficiently without an increase, and that by allowing an increase, the CMA could be driving bills even higher for customers. As such, we have called for the cost of capital to remain the same or lower.

As we look ahead to the next phase of this process, our work behind the scenes continues, and we look forward to the opportunity to speak up for water consumers in our response to the CMA when its redeterminations are announced in September.

Categories: Blog, News, Price Review

1 comment

  1. Peter Weeks says:

    Disappointing that the CMA ruled largely in favour of the 4 water companies which appealed against OFWAT’s rulings. Ordinary customers really cannot take part in debates on the complexities of the notional cost of capital, but this is at the heart of how prices are set. I have long campaigned against Bristol Water’s pricing policy. For a decade and more Bristol Water put up prices annually by more than inflation, and passed this extra revenue on to their shareholders as dividends (including to a Canadian pension fund)! Outrageous exploitation of a monopoly position and a failure of regulation by OFWAT.

    Appealing to the CMA has paid off handsomely for Bristol Water. Next time they and every other water company will again appeal to the CMA. What’s to lose? Who stands up for the customer who wants low fair water prices? Does the CCW stand up for the customer? Does OFWAT? Clearly the water companies can afford good lawyers to make their case to the CMA ….

    The key matter is water prices. That is what the water companies want to raise. That is your job to fight.

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