Ofwat consults on proposed modifications to strengthen licence ring-fence conditions

Ofwat has now published its much anticipated consultation on modifications to strengthen the regulatory ring-fence conditions in companies’ licences, which makes for essential reading for anyone in the water sector (click here to view).

This consultation follows on from the financial resilience discussion document Ofwat published just before Christmas last year, and includes proposals to:

• Increase the requirements around maintenance of issuer credit ratings.

• Expand the considerations (to include, amongst other things, customer service delivery and company investment needs) that must be taken into account in dividend policies, and before dividends can be declared or paid.

• Make it easier to trigger the cash lock-up – further restricting circumstances in which distributions can be made.

Each of Ofwat’s proposed modifications would increase the burden on, and scrutiny of, companies in an already challenging regulatory environment.

This is also one of the first times that key changes are being proposed under Ofwat’s newly strengthened licence modification powers. Earlier this year, the Environment Act 2021 made changes to the Water Industry Act 1991 to allow Ofwat to unilaterally modify English companies’ licences, although decisions will still be subject to CMA appeal.

Please do reach out to your usual client team – we would be delighted to discuss.