Regulator Ofwat has signalled that it will allow water companies to lift bills further than initially proposed after the industry argued that it needed more money to invest in Britain’s ailing infrastructure.
Ofwat said on Tuesday the industry had made a fresh push to increase prices beyond the regulator’s draft decision in July to fund an additional £7bn of investment, which would take the total to £108bn.
“This increased expenditure request will, if approved, increase customer bills compared to our draft determinations,” it said.
Water companies are currently negotiating with Ofwat the extent to which they can raise real terms bills over the five years until 2030, with a final decision expected in December or January.
In July the water regulator for England and Wales angered the sector by rejecting its demand for an average 29 per cent increase in bills in favour of a 19 per cent rise.
Now companies have come back with a request to raise them by 40 per cent, which would take the average household bill to at least £615 a year in five years’ time compared with £439 now — even without inflation.
Water companies argue that the need for bill increases reflects a rise in the scope of their proposed investment schemes, and increased regulatory costs. They are also facing higher labour, chemical, energy and financing charges.
“Ofwat usually improves its offer between the draft and its final decision and in this case its initial proposals would not have been high enough to finance the need for investment,” said Dominic Nash, analyst at Barclays.
Southern Water has proposed the largest 84 per cent increase in bills after initially proposing a 73 per cent rise. Ofwat had proposed a 44 per cent increase for Southern during its draft determination in July.
Southern said: “We are taking this approach in response to what our communities have told us they want us to deliver.”
However, there is a wide range of requests from companies with Northumbrian Water seeking the lowest rise at just 21 per cent.
Thames Water has gone back to Ofwat to ask for a 53 per cent rise in real terms after the water regulator rejected its proposal for a more modest 44 per cent jump earlier this year.
The troubled water giant, which is teetering on the brink of collapse, had been told in July by the regulator that it would be limited to a 23 per cent increase in household bills.
The company provides water and sewerage services to about 16mn households in London.
Thames Water needs the bill increases to raise new equity after existing investors declared that the business was “uninvestable” under Ofwat’s current regime.
The company is scrambling to find new equity and risks running out of cash by Christmas. It has already warned that its ageing infrastructure is a risk to public safety.
Thames Water and Northumbrian declined to comment.
Water UK, which represents the industry, said: “Since first submitting their investment plans over a year ago to Ofwat, water companies have new legal additional requirements to fulfil, along with inflation costs to bear.”
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