Ofwat has announced that it has closed an enforcement case into Yorkshire Water after the company agreed a structured plan to strengthen its financial resources in the interests of customers.
This will involve Yorkshire Water recovering two loans that it had made to other companies within its wider company group, totalling around £940m. In addition to bringing this equity back into the regulated business, the company has made further commitments to improve its financial resilience and shareholders will invest an additional £100m to reduce spills from storm overflows.
Ofwat opened the case due to concerns about the loans Yorkshire Water had made to other companies within its wider company grouping. The regulator wanted to ensure that these inter-company loan arrangements complied with requirements in Yorkshire Water’s licence that are intended to protect customers and ensure that the regulated company has the resources it needs to deliver its services effectively, including having appropriate consent from Ofwat for such loans.
In November 2021 Ofwat’s Monitoring Financial Resilience report concluded that Yorkshire Water had weak levels of financial resilience and had work to do to strengthen this to the level reasonably expected of a provider of essential public services. Customer service and the environment can suffer if a company with poor operational performance does not have the financial flexibility to turn around poor performance.
During the investigation Yorkshire Water took steps to address Ofwat’s concerns about the loans. The structured repayment plan and additional commitments Yorkshire Water has put forward have both addressed these concerns and secured additional benefits for customers. Yorkshire Water has provided these commitments as an enforceable undertaking under section 19 of the Water Industry Act 1991. As a result, Ofwat has closed its investigation and will now monitor the delivery of the undertakings. Ofwat will not hesitate to act if the commitments are not met.
David Black, Ofwat Chief Executive, said:
“Companies must be financially resilient if they are to tackle the challenges that affect customers and the environment. We are pleased that Yorkshire Water recognised our concerns and is taking these active steps to improve its financial position in the interest of customers.
“We welcome the additional £100m shareholder funded investment to take urgent action to reduce spills from storm overflows.”
