The Competition and Markets Authority (CMA) has delivered its decision on Bristol Water’s Price Review appeal – which fixes the water company’s wholesale expenditure at £428.6 million, Ofwat’s assessment of £409 million and Bristol Water’s estimate of £537 million.

This is broadly the same as the CMA found in its provisional findings, although the CMA made small changes in the underlying numbers for the efficient level of on wholesale activities (largely the costs of abstracting, storing, treating and transporting water and the associated investment requirements)

The water services regulator Ofwat had referred an appeal from Bristol Water to the CMA in March this year, following the water company’s decision to reject the regulator’s final determination on price controls for the period 2015 to 2020.

Bristol Water had argued that Ofwat’s determination would not leave it with sufficient funds to run the business and invest and that higher prices were needed. Bristol Water had estimated the impact of its plan would be to reduce household customer bills on average by around 6% for the period 2015 to 2020 before the impact of inflation (measured by the retail price index (RPI)).

After further assessment following the provisional findings published in July, the CMA has determined that Bristol Water’s household customer bills should fall on average by 16% before inflation for the period 2015 to 2020. This compares with Ofwat’s original determination that household bills would fall on average by 19% before inflation and has increased by £1 a year compared with the CMA’s provisional findings due to small changes made to depreciation, the cost of capital and some other costs.

The CMA’s full report has now been sent to Ofwat and will be published at a later date after the Department for Environment, Food and Rural Affairs (Defra) has determined whether any excisions are required to the report.

Inquiry group chair, Anne Lambert said:

“Our determination results in a substantial reduction in customer bills, compared with Bristol Water’s plans. The resulting bills are also slightly above the level set in our provisional findings because of further information provided by Bristol Water.”

“We have considered the needs of Bristol Water’s customers and the levels of investment required to maintain quality and reliability of supply. As part of this process, we have rejected several projects proposed by Bristol Water because we did not consider they were fully justified and in the interests of customers. We have also placed funding for a large water treatment project on hold. It is subject to approval by Ofwat if further investigation by Bristol Water justifies the investment. Overall, we considered that a small increase from the Ofwat determination was justified.”

In arriving at its determination, the CMA assessed submissions and information provided by Bristol Water, Ofwat and third parties including the Consumer Council for Water, Bristol Water’s Local Engagement Forum, customers and other water companies. The CMA also appointed its own independent engineering consultants.

Ofwat expressed all figures in 2012/13 prices and on this basis showed that average annual household bills would reduce from £191 per customer in 2014/15 to an average of £155 for each year over the period 2015 to 2020. Using the same 2012/13 price base, under the CMA determination average annual household bills for the period 2015 to 2020 would be approximately £160. Bristol Water estimated household bills would reduce from £198 in 2014/15 to an average of £187 for the period 2015 to 2020 under the same price base.

The CMA has estimated that Bristol Water’s wholesale cost of capital should be 3.67%, versus Ofwat’s figure of 3.60% and Bristol Water’s figure of 4.37% and found that the determination would enable Bristol Water to finance its functions.

The Consumer Council for Water has welcomed the decision - Tony Smith, Chief Executive said: 

“The CMA’s final decision is good news for Bristol Water customers who will still see an average 16 per cent reduction in their water bills, before inflation, by 2020. Ofwat’s original decision represented a good deal for customers and we are pleased it has been largely upheld.”

“Bristol Water must now deliver the quality of services that customers made clear they wanted from the company.”