PN 03/20: Ofwat confirms financial arrangements have to serve customers interests

Ofwat has today published guidance to protect the interests of customers and the financial resilience of water companies.

Water companies wanting to enter financial arrangements which are ordinarily prohibited, such as intercompany loans from the water company up to the parent company, will receive consent only if the arrangements clearly serve customers’ interests

Whilst Ofwat has confirmed this could include direct customer benefits (such as bill reductions), or indirect benefits (such as arrangements that improve efficiency), the guidance sets a high bar for companies to clear before such arrangements will be approved.

Ofwat has received support from the sector on the guidance and many companies have already started unwinding legacy arrangements. For example:

  • Anglian arranged the full repayment of their £1.6bn intercompany loan
  • £220m of Thames Water’s intercompany loan was repaid
  • Southern Water has also ensured the settlement of £682m of their intercompany loan; and;
  • South Staffordshire Water arranged the early repayment of a £15m intercompany loan before its contractual maturity date

Ofwat’s Chief Executive, Rachel Fletcher, said:

“While the technicalities behind these issues are complex, the guiding idea is very simple: we won’t let companies construct financial arrangements that are not in customers’ interests or could compromise the financial resilience of the water companies we all rely on.

“Today marks another important step in our work to strengthen governance arrangements in the water sector, so everyone can have confidence that companies are doing the right thing by the communities they serve.”

 ENDS

Notes to editors:

  1. Final Consents Guidance
  2. Consultation on draft guidance on Ofwat’s approach to granting derogations from the regulatory ring-fencing framework