PN 07/20: Ofwat proposes to strengthen financial ring-fencing provisions to protect customers

Ofwat is today consulting on updating the ring-fencing provisions contained in the licences of the 17 water companies in England and Wales, which, among other things, protects customers by restricting payouts to shareholders in certain circumstances, such as if the company is in financial distress.

Currently, not all licences of the monopoly water companies have the same financial ring-fencing provisions in their licences. This package of changes would bring them all up to the same standard, ensuring that the interests of customers across England and Wales would be protected in the same way.

The changes would mean that all companies would have ‘cash lock-up’ provisions – thereby safeguarding the interests of all customers. These provide that, if a water company loses its investment credit grade rating, it is barred from making pay-outs to shareholders or removing money or assets from the business.

The updated provisions support the long-term viability of the company and its services, which benefits customers, companies and long-term shareholders.

Rachel Fletcher, Chief Executive at Ofwat said:

Today, perhaps more than ever, we need to do all we can to look after customers’ interests and put arrangements in place to promote water companies’ financial resilience. Part of that means making sure that if a water company is facing financial difficulties, customers do not suffer.

“We have consulted extensively on these measures and are now looking to companies to agree to this greater protection for their customers.”

 

Notes to editors:

  1. Consultation under section 13 of the Water Industry Act 1991 on proposed modification to the largest undertakers’ licences for ring-fencing
  2. Thames Water: Conclusions on Change of Control and Modification of Instrument of Appointment document
  3. Conclusions on Strengthening the Regulatory Ring-fencing Framework