Thames Water boss defends record when running regulator Ofwat

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The new co-chief executive of Thames Water has defended her record when running industry regulator Ofwat, telling MPs she would not “apologise” for a period during which the company’s previous owners extracted hefty dividends.

Cathryn Ross headed Ofwat between 2013 and 2017, a tenure that overlapped with Australian investment group Macquarie’s ownership of the troubled water company. She joined Thames in 2021 as head of strategy and regulatory affairs.

The decision to install Ross as temporary co-chief following the abrupt departure of Sarah Bentley last month has prompted criticism of the “revolving doors” between Ofwat and the industry it regulates.

At a hearing of the House of Commons environment select committee on Wednesday, Labour MP Darren Jones invited Ross to apologise for what he said were the regulator’s shortcomings under her leadership.

“I won’t apologise for my role at Ofwat, no,” Ross replied.

In a tense exchange, Jones, who is chair of the business select committee but attended the hearing, said: “But you signed off as the chief executive of the regulator in 2014 for Macquarie to ramp up the debt from £3bn to £10bn while taking out nearly £3bn in dividends, often paying dividends higher than the profits the company made in particular years.”

The company’s debt burden began climbing in 2007, several years before Ross ran Ofwat. Under Macquarie’s ownership between 2007 and 2017, the company’s debts climbed from £3.4bn to £10.8bn and almost £3bn in dividends were taken out.

Fears over the financial health of Thames, which has 15mn customers in London and surrounding areas, last month prompted the government to draw up contingency plans in the event of its collapse.

Thames said on Monday that it had secured agreement from its shareholders to inject £750mn of equity into the company, less than the £1bn it had sought. The new funds are dependent on Thames developing a new business plan and Ofwat signing off on an increase in water bills.

Ross admitted that Ofwat’s leadership had not always made perfect decisions but insisted it had fulfilled its statutory duties. 

“What those final determinations actually did was set out what the company needed to deliver for its customers and the environment, and also the amount of money that they could recover from their customers to do that. That is all they did,” she said. 

Asked if she had talked to the government about Thames being nationalised, Ross replied “No”, adding: “Over the last couple of weeks, I’ve read a lot in the press, some of that was rather more outlandish perhaps than we would like.”

Ross described special administration, in which the government would take temporary ownership of the company, as “very much a nuclear option” for which there was a “very, very high bar”.

Pointing to its £4.4bn in cash, she told MPs: “We are a long way off that insolvency trigger and I think a long way off the conditions for special administration.” 

But David Black, chief executive of Ofwat, said the regulator had been “engaged with Thames on their financial resilience for some time” and that it still “remained concerned” that the company had significant issues to address. “We will remain in discussion with the company about their ability to secure financing from shareholders,” he told the committee.

Alastair Cochran, co-chief executive of Thames, told MPs that the new money from shareholders would not be delivered immediately but instead be raised “over the next two years”.

Shareholders, which include the UK’s Universities Superannuation Scheme, had been “incredibly supportive”, he added. He described the proposed fundraising, when combined with a £500mn equity injection last year and an “indicative” £2.5bn coming before 2030, as “the largest equity package to the UK water industry since privatisation”.