Reflecting on CMA referrals and lessons for PR24

Ceri Jones, Associate Director at Aqua Consultants

Having spent over 30 years in water regulation, including the initial privatisation and various price reviews, my involvement in a CMA price control reference as a water company Regulation Director during PR19 was a new and insightful experience. It is worthwhile reflecting on some of the lessons from this experience as we approach the latter stages of PR24.

The CMA process is unique in terms of its intensity and pace. Despite appearing lengthy with its numerous submissions and hearings, the process feels like an extended sprint due to tight deadlines and little scope for extensions. Holidays or operational issues offer little respite; deadlines are stringent, and extensions are rare and likely to be no more than a couple of days.

A dedicated team is essential, and it needs to be led by company executives and non-executive directors (NEDs), supported by internal experts and external advisors with significant CMA experience. Unity and clarity in the team are crucial – this is no place for internal politics or vague objectives. Companies must lead their case with robust evidence, while advisors provide strategic and procedural guidance.

The PR19 process was notable for having four companies appeal simultaneously, a first in this context. This posed challenges in managing individual company reviews alongside joint hearings addressing common issues. The process was further complicated by the pandemic, which called for a shift to remote hearings – a surprisingly smooth transition. In the future, I suspect it would be necessary to factor travel time in for any future appeals although a hybrid approach could work well.

Traditionally seen as a last resort, the moderate success of PR19 referrals may change perceptions. Referrals are a legitimate part of the regulatory process, but they demand significant resources and senior management commitment. Therefore, early contingency planning is advisable, although often overlooked.

At Northumbrian, our late decision to appeal meant rapidly engaging advisors and acclimatizing them to our processes. Despite a delayed start, our collective focus ensured we remained competitive. A critical element of our preparation was organizing and accessing our evidence base. The CMA process is evidence-driven, and the onus is on the appellant company to have high-quality, readily accessible data and all the necessary evidence at its fingertips. This requires well-documented systems and processes for efficient data retrieval and analysis.

Aqua Consultants played an important role in helping to enhance our evidence base: supporting the company to identify and address gaps and ensuring our arguments were solid and well-supported. The importance of starting this process early cannot be overstated, as it not only aids in CMA preparations but also benefits regulatory, business planning, and asset management processes.

Often, the necessary data exists within a company but may be scattered or in varied formats. Identifying and addressing any fundamental evidence gaps early is beneficial.

Reviewing the evidence base soon after a business plan submission, especially before shifting focus to DD and FD, is essential preparation for a potential referral. A robust and coherent evidence base is foundational for challenging DD elements or mounting a CMA appeal.

Aqua can assist companies in various ways, including:

Challenging the engineering and regulatory logic of cases
Checking consistency within and between business cases
Benchmarking approaches and costs with best practice
Tracking the evolution of costs
Improving the documentation of source evidence
Enhancing the transparency and accessibility of data
Improving the drafting of technical information aimed at a non-technical audience

The views expressed in this article are solely those of the authors and do not represent the position of any organisation.