Ofwat eyes measures to shore up water companies’ financial resilience

Ofwat is today moving to strengthen water companies’ financial resilience by calling on them all to adopt a common set of standards. This would include strengthening requirements to maintain an investment grade credit rating and accepting restrictions on pay-outs to shareholders by any company put on a ‘negative watch’ by credit rating agencies.

The proposals, being consulted on today, are intended to further safeguard customers’ interests by ensuring water companies remain financially robust and continue to attract investment.

The changes will ensure all water companies have the same requirements to maintain an investment grade credit rating and ‘cash lock-up’ provisions embedded into their licences. Cash lock-up conditions ensure that if a water company is at risk of losing its investment grade rating, it is barred from making pay-outs to shareholders or removing money or assets from the business.

Ofwat has confirmed that two water companies, Thames Water and Portsmouth Water, have agreed to a suite of changes which today bring their licences up to the industry leading standard.

This is the latest measure from Ofwat to reform the water sector. In recent months, the regulator has also consulted on enshrining principles of good governance in all licences and taken steps to require companies to share with customers any financial gains they make from taking on high levels of debt.

Ofwat Chief Executive, Rachel Fletcher, said:

“This is the latest step in our programme to reform the water sector. These measures include strengthening requirements to maintain an investment grade credit rating which will protect customers by helping to make sure that water companies remain financially robust.”

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