Credit rating agency Moody’s has said Ofwat’s latest proposals for water company licence modification are credit positive for the sector.

Moody’s said the latest proposals, published by Ofwat on 21 December, reduce uncertainty about the changes to be made to the regulatory regime in the near term as they focus primarily on the changes needed for the upcoming price review in 2014.

The rating agency continues to believe, however, that negative credit pressure will build for water companies over the medium to long term due to a shifting regulatory landscape, although the full extent of the consequences will not become clear until the regulator publishes more detailed proposals for its future price limits methodology in 2013.

The third version of licence change proposals follow extensive negotiations between Ofwat and the companies after the majority of companies declined to accept proposals, issued in December 2011 and October 2012, on the basis that they provided the regulator with a disproportionate level of flexibility.

Moody’s believes that a majority of companies will likely accept the latest proposals, “given that the degree of flexibility afforded to the regulator has been very much reduced as compared to previous licence modification proposals.”