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UK water regulator Ofwat plans to allow utilities in England and Wales to increase customer bills by an average of 36% by 2030. This is a larger increase than previously announced, but still falls short of the increases requested by troubled companies such as Thames Water.
Ofwat has announced increased legislation in its “final decision” on a series of complex measures and metrics that will govern Britain’s privatized water companies over the next five years.
David Black, CEO of Ofwat, said: “Water companies must now rise to these challenges, and customers will rightly expect them to demonstrate over time that they can deliver significant improvements that can justify increased bills.” said.
The regulator also fined Thames Water £18 million last year after finding the company’s dividend payments breached license conditions.
The bill increase is higher than the 21% average increase that Ofwat said it would allow earlier this year. Water utilities requested an average increase of 44 percent.
The increase means your average bill will rise by £31 a year before inflation between now and 2030.
Thames Water could increase bills by up to 35%, well below the 53% increase demanded by the nearly insolvent utility.
But future bills could rise higher than the headline figures for both Thames Water and Southern Water, whose excessive finances are also coming under scrutiny. Ofwat said the two utilities’ annual bills could rise by a further £11 and £20 respectively “until there is more clarity on the timing and profile of the company’s plans”.
Water companies are negotiating with Ofwat over how much their bills can rise from 2025 to 2030. The industry has been pushing for huge increases, saying it needs to fund investment in vulnerable infrastructure.
It is the first time in 15 years that Ofwat has ruled in favor of allowing water companies to increase actual bill prices while reducing costs for customers before inflation in the last two five-year price reviews.
Since the industry was privatized in 1989, water companies have had to reach agreements with regulators every five years about how their bills will increase, how much they can invest and what returns investors can earn.
There is a risk that Thames Water’s prolonged crisis will drive investors away from the industry and raise Ofwat’s stake. Thames Water, Britain’s largest water company, warned that an unfavorable ruling would jeopardize its efforts to secure new equity from investors.
Problems with British water companies and pollution of rivers and coastal areas have also caused public outrage.
Steve Reed, the environment secretary, said the public had a “right to be angry” about the performance of the water industry and criticized the previous Conservative government.
“They have irresponsibly allowed water companies to line the pockets of their presidents and shareholders with customers’ money,” he said.
A Labor government would “fence the money allocated to investments so it can never be diverted to bonuses and shareholder dividends,” Reed added.
Compared to the draft decision published last July, Ofwat significantly increased the revenue allowed for water utilities from 3.72% to 4.03%, which it said reflected “recent market movements”.
Ofwat published full details of its final decision on Thursday, but it may take several days for water companies and their armies of lawyers and advisers to fully process the ramifications of the complex set of rules and allowances.
“The devil is in the details,” said one Thames Water bondholder.
Water companies can also appeal Ofwat’s final decision through the Competition and Markets Authority. You have two months to submit your case to the CMA, and it is expected that it will take at least six months for the matter to be resolved.
An emergency loan of up to £3 billion that Thames Water is in the process of receiving court approval could provide funding for its CMA troubles, with half of the funds only to be released when it submits to the competition regulator.
Four companies – Bristol Water, Northumbrian Water, Anglian Water and Yorkshire Water – won their appeal to the CMA against Ofwat’s 2019 pricing decision. Their appeal to competition regulators has been the greatest since privatization more than 30 years ago.
