Ofwat refuses Kelda’s proposals to restructure Yorkshire water
Sir Ian Byatt, the Director General of Ofwat, said on 25 July that as they stand, Kelda's proposals to separate the ownership of the assets from their operations fail to address important issues and so cannot receive regulatory approval.
Previously known as Yorkshire Water, the Kelda Group announced its plans to transfer its assets to a Registered Community Asset Mutual (RCAM) in June of this year (see related story). The proposed mutual would have to borrow all of the finance to buy the assets from Kelda.
Byatt said that Ofwat’s preliminary consultation found that Kelda has failed to:
- address how customers would benefit from the change in ownership;
- properly inform Yorkshire Water’s customers about the proposals
and consult with them;
- ensure that the Drinking Water Inspectorate and Environment Agency
are able to enforce the required quality standards;
- demonstrate clear independence between the proposed mutual and
Byatt also pointed out that that the present equity-based system has worked well
and has successfully delivered savings to customers, a major
programme of environmental improvements and investment in
infrastructure, whereas the gains to 1.9 million customers offered by a
mutual had yet to be demonstrated.
“The consultation and work done so far shows that more work would need
to be done on these ideas before they could be put into practice.
And there can be no guarantee that the problems can all be
satisfactorily resolved, ” Byatt said. “Meanwhile, water companies should concentrate on delivering service to customers and ensuring that the necessary investment takes place to deliver drinking water and environmental programmes decided by Ministers. They have the financial resources to do this,” he added.
In reply, Kelda Group Executive Chairman John Napier said that the group was withdrawing its proposal, “with the intention of seeking a way forward that is acceptable to the Director General of Water Services and others.”
“We continue to believe that there are significant benefits and advantages to customers, shareholders and the community from a separation of asset ownership from operations and the development of structures which attract large amounts of capital at the lowest cost. We have made it clear that our proposals require regulatory approval and because they involve mutuality, they also require some form of clear customer endorsement,” Napier said.