The UK’s competition regulator provisionally ruled in favour of four English water companies on Tuesday over their rebellion against demands for steep cuts to household bills.
The Competition and Markets Authority backed the appeal by Anglian Water, Yorkshire Water, Northumbrian Water and Bristol Water against a ruling by water watchdog Ofwat for sharp price reductions.
The four companies said the cuts to bills would prevent them from investing enough in England’s stressed water infrastructure to address pollution and leakage failures.
It is the biggest rebellion by water companies against their regulator in the 30 years since privatisation.
Ofwat said it would make further appeals ahead of the CMA’s final decision in December to “ensure customers get a good outcome, and that it is not too easy for investors to make returns in this sector”.
Kip Meek, chair of the CMA inquiry group, said: “We think the water companies need to be provided with more revenue to secure continued investment in the sector.
“We have sought to ensure that our provisional findings strike the right balance between bill reductions and the interests of current and future customers in resilient infrastructure, particularly in the face of climate change.”
Ofwat had ordered firms to cut annual bills for customers by £50 on average over the next five years, and raise by £1bn investment in England’s water infrastructure.
The decision comes as public pressure grows on water companies, which have been accused of loading themselves with debt and paying out large dividends at the same time as presiding over pollution and leakage failures.
Ofwat has argued that its price settlement for the five-year period still gave each of the dissenting companies more money to spend on infrastructure than they have done historically.
It is concerned that any surplus from bills not spent could be diverted towards payouts to investors.
Liz Barber, chief executive of Yorkshire Water, welcomed the CMA ruling as a “significant change in regulatory approach”.
“The CMA has recognised that the needs of current and future customers are best served by encouraging investment in infrastructure to mitigate the impact of climate change,” she said.
Emma Clancy, chief executive at the Consumer Council for Water, said: “While customers will welcome the additional investment to safeguard the reliability of future services, any bill rise — no matter how small — would be a body blow to households already reeling from the financial impact of coronavirus.”
Colm Gibson, managing director at Berkeley Research Group, said the ruling was “good news” for investors in water and energy companies.
The decision is likely to bolster the energy network companies, which have until December to reach an agreement with their regulator Ofgem.