Under-fire UK water companies lash out at ‘labyrinthine’ regulatory system

Britain’s privatised water companies have lashed out at Ofwat for creating a “labyrinthine framework of intense complexity”, which is stalling the investment needed to manage pollution and leakage.

Water UK, which represents the utilities, said the regulator had consistently prioritised lower bills and operational efficiency over improvements to the infrastructure network.

In a written submission to the House of Commons’ environmental audit committee last week, WaterUK said Ofwat’s regulatory processes were “slow and insufficiently flexible, which is why it will take seven years to get meaningful investment into overflows”.

“The public clearly do not think this system of econometric overengineering is delivering for them,” the industry body added.

The row comes ahead of a draft decision by Ofwat on June 12 over how much water companies will be allowed to increase bills over the next regulatory period, which runs until 2030.

Water companies argue they need to raise customer bills by about one-third to maintain services and make vital infrastructure improvements.

However, the regulator will need to balance companies’ demands with a cost of living crisis and growing public fury over sewage outflows and water leakage.

There are also concerns over companies’ increased borrowing, with about one-fifth of customer bills going towards servicing debt, according to the Competition and Markets Authority.

Thames Water, the UK’s largest water company, is struggling under the weight of an £18bn debt mountain and it may be temporarily renationalised. Its owners have said Ofwat’s regulatory regime has made the company “uninvestable”.

Ofwat had “a difficult job in assessing these [business] plans but, in my view, has made this more difficult for themselves by creating a labyrinthine framework of intense complexity”, Stuart Colville, deputy chief executive of Water UK, said in the submission. 

The regulatory regime required companies to produce nearly 1,000 different documents in total, as well as 53,000 pages of business plans every five years, he added.

Since water companies submitted their business plans last October, Ofwat has sent an average of 20 queries each working day, with a default deadline to respond within 48 hours. 

Responding to the submission, Ofwat told the Financial Times the performance of water and wastewater companies “is simply not good enough”.

“Given the sector is asking for £100bn of customers’ money over the next five years, it’s only right that the regulator thoroughly scrutinises what is proposed and challenges robustly any points that require further detail or clarification,” it said.

Water UK also accused Ofwat of “boasting” of low water bills and cuts to investment, including its decision to “disallow” £6.7bn of proposed expenditure” asked for by water companies between 2020 and 2025.

The result was “underfunding of less visible areas like maintenance and asset replacement that are crucial for managing pollution and leakage”, Colville said.

Ofwat disputed claims it had blocked investment, arguing it had “offered backing to all” companies’ environmental projects. Around a quarter of the funding — worth almost £2bn — approved for spending by 2023 had not been spent. Since then it had allowed them to bring forward £2bn of expenditure.