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Business & Economy

Northumbrian Water to challenge regulator over plans to reduce bills

North East water supplier Northumbrian Water is preparing to challenge regulator Ofwat over a new ruling that would force the water company to reduce bills.

The water supplier, which serves nearly three million people across the North East, wants Ofwat to refer their proposed five-year plan to the Competition and Markets Authority, after failing to reach an agreement.

The row comes after Ofwat set a number of targets that Northumbrian felt were unreasonable, including bill reductions and changes to plans to invest in local infrastructure.

Northumbrian Water originally presented a five-year plan at the end of 2018, in which the water and sewerage company supplier proposed reducing water bills by around 12% — a measure that would reduce household water bills by £40 on average.

But Ofwat, the industry watchdog responsible for regulating privatised water and sewerage industry, rejected Northumbrian Water’s plan last year, pushing it to deliver a new plan with an increased focus on customer service, environmental improvements, affordability, innovation and resilience.

It is understood that Ofwat — which is led by former Anglian Water boss Jonson Cox — wants Northumbrian Water to reduce its bills further, though the company has increased its original plan to offer a 14% reduction over the five-year period.

The regulator has demanded that water suppliers across the UK reduce bills by £50 over a five-year period and reduced their permitted return on investment from about 3.75 per cent to 2.96 per cent, a ruling that would likely lower dividends for the supplier.

In response, Northumbrian Water has now asked Ofwat to refer its decisions to the Competition and Markets Authority (CMA) for review.

Northumbrian isn’t the first supplier to challenge the ruling, with firms in Yorkshire, Bristol and East Anglia also referring their plans to the CMA, though some other water companies have accepted Ofwat’s financial settlement.

Northumbrian Water chief executive Heidi Mottram said Ofwat’s proposals were contrary to the best interests of their customers and claimed that the settlement favoured short-term bill reductions over investment in the North East’s water systems and infrastructure.

The North East firm also wants to do more work to protect the environment and reduce the potential the impact of climate change on the region, arguing that Ofwat’s settlement does not do enough to achieve this.

The water company put together the plan in light of feedback from thousands of customers, claiming that the large majority of those of those surveyed wanted a balance between lower bills and environmental protections and improvements.

In their original review of Northumbrian Water’s five-year plan, Ofwat praised their “sector-leading bill reductions” but felt that their proposed financial incentives were ultimately too low to drive the standard of performance that customers expect.

Ms Mottram said: “NWL is a high performing and efficient company with a long track record of delivering for our customers and protecting the environment.

“We have listened carefully to our customers in the development of our business plan.

“Our assessment of the PR19 Final Determination is that it is contrary to the long-term best interests of our customers and doesn’t provide for sustainable investment going forward, to the detriment of all our stakeholders.

“We have therefore asked Ofwat to refer the PR19 Final Determination to the CMA for review.”