Ofwat appoints L.E.K. Consulting as independent monitor of Thames Water
England and Wales’ independent monitor of the water industry has appointed a management consultancy as an independent monitor to crisis-stricken Thames Water. The appointment of L.E.K. Consulting to effectively do Ofwat’s work for it comes at a time when the regulator faces intense scrutiny in its own right – with calls to abolish it at a time of rising costs and rampant pollution.
Thames Water is a British private utility company responsible for the water supply and waste water treatment in most of Greater London. In August 2024, Thames Water lost two investment grade credit ratings, compromising of one of the conditions it must fulfil in order to maintain its operating licence – and is reportedly at risk of being re-nationalised to avert a crisis that would impact the provision of water and services of millions of people in the UK capital.
Since then, the British press has reported that lenders holding more than £12 billion of Thames Water's debt held face-to-face talks with Ofwat to pitch a rescue deal, aiming to avert its nationalisation. While that is understood to still be in play, Ofwat has also appointed a private consultancy to function as an ‘independent monitor’ for the company.
Global strategy firm L.E.K. Consulting will take on the role as scrutiny mounts on Thames Water – but also on Ofwat itself. Independently monitoring the water sector is what many critics would describe as explicitly being Ofwat’s remit – and outsourcing those responsibilities in a crisis like this will not have won it new fans.
Indeed, after Sky News broke the story of L.E.K. Consulting’s appointment, a disconnected release noted that Ofwat’s future may hang in the balance. New Environment Secretary Steve Reed has launched a "root and branch" probe to fix the UK's polluted and "failing" water system, according to the BBC. Almost all options will be considered during the review, “including reforming or getting rid of Ofwat, which regulates the industry in England and Wales.”
Formed in 1989, The Water Services Regulation Authority, or Ofwat, is the body responsible for regulation of the water and sewerage industry in England and Wales. Created as the UK’s water system was privatised in the late Thatcher years, Ofwat’s chief statutory duties include protecting the interests of consumers, securing the long-term resilience of water supply and wastewater systems, and ensuring that companies carry out their functions and are able to finance them.
On every front, however, the water industry has suffered a barrage of criticism in recent years. Companies have discharged record levels of raw sewage into rivers and coastal waters since the pandemic – while raising bills, and increasing payouts to shareholders, even as they cite the need to put bills up further to improve infrastructure to prevent further sewage discharges.
Ofwat has been publicly criticised for struggling to respond to these issues. And it is also under scrutiny for often working with consulting firms which have close tied to the water companies Ofwat is supposed to be monitoring. Earlier in 2024, a report from the Observer suggested there was “no dividing line” between the procurement of the regulator and the regulated. Analysing invoices paid to Ofwat’s private sector suppliers from 2019 to the first three months of 2024, collated by procurement specialists Tussell, one example of the cross-over was PwC, which received more than £11.5 million in fees from Ofwat since 2019, while also auditing Thames Water.
