Challenging Ofwat’s PR14 Final Determination | FTI Consulting

Challenging Ofwat’s PR14 Final Determination

Economic and Financial Consulting

October 17, 2013

Companies in the water industry in England and Wales are currently working on the development of their business plans ahead of Ofwat’s deadline of 2 December 2013 for their submission. When compiling their plans it is important that companies have regard to the possibility of appealing Ofwat’s Final Determination to the Competition and Markets Authority (CMA). While the date for making the decision to appeal may be a long way into the future, it is important to act now to preserve the option to do so robustly should the need arise.

Thinking Ahead: Why water companies should be planning now for a possible Competition Commission appeal

Ofwat is struggling to deliver an ambitious and complex programme for PR14. While it has recently published its final methodology and a draft timetable for the review, Ofwat has also sought a substantial increase in licence fees to fund additional support from its PR14 ‘delivery partner’. Given the difficulties Ofwat appears to be having, there is increasing concern that Ofwat’s Final Determinations will not be robust or sustainable. In such a scenario, and against a background of low interest rates and on-going concern about the affordability of water bills, companies need to consider seriously the possibility of an appeal in case Ofwat’s proposals are unacceptable.

The final decision to accept or reject Ofwat’s Final Determination and appeal to the CMA should only be made based upon a comprehensive understanding of the facts. These should include:

  • a robust assessment of the strengths and weaknesses of the business plans and other submissions made to Ofwat
  • a full understanding of the potential implications of Ofwat’s proposals
  • a clear articulation of the arguments that might be made to the CMA
  • a well-developed plan for how the company will address the resource implications of the CMA appeal process.

It is vital that due consideration be given to the potential case throughout the PR14 process; failing to think through the decision properly leaves a company at risk either of taking the decision to appeal when the case is weak – risking not only wasting resources but also potential damage to the reputation of the business - or failing to appeal when the case is strong.

For PR14 this means companies should be considering a potential appeal now

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