IB 16/13: Thames Water proposes significant increase in bills

Thames Water has asked Ofwat to consider increasing the limits on the prices it can charge its customers.

In 2009 Ofwat set price limits on prices for the period 2010 – 15. Thames said that it has experienced changes to certain specific costs that were not anticipated by Ofwat, when price limits were set.

The regulator’s 2009 decision means Thames already has an allowance to increase its charges by 1.4% above inflation in 2014/15. Thames has indicated that this new application would add around a further 8% – around £29 – to the average household bill. The current average Thames household bill is around £354.

Regina Finn, Ofwat Chief Executive said:

“We know that household incomes are becoming ever more stretched – nobody wants to see any unnecessary increase in bills. We have made it clear to companies that we expect them to talk to their customers, listen to them and take account of their customers’ views.

“We will challenge these proposals and question the company strongly on their reasons. Proposed increases will only be allowed if they are fully justified.”

Thames say increases in its costs are because of:

  • increases in bad debt costs above what was allowed in 2009 price limits, specifically additional bad debt due to the economic downturn;
  • the impact of the transfer of private sewers;
  • Thames tideway land purchase costs above what was allowed in 2009 price limits; and
  • increases in Environment Agency charges above what was allowed in 2009 price limits.

Ofwat expects to make a final decision by November 2013. Any revisions to price limits would not apply to customers’ bills before April 2014.

Notes to Editors

 

  1. The Water Services Regulation Authority (Ofwat) is the economic regulator of water and sewerage companies in England and Wales. It exercises its powers in a way that it judges will protect the interests of consumers, promote value and safeguard future water and sewerage services by allowing efficient companies to carry out their functions properly, and to finance them.
  2. Condition B of a water company’s licence allows it to apply for an adjustment to its price limit for material changes to specific items that have a total impact on the company amounting to at least 10% of the company’s turnover. These are:
    • specific items that are not allowed for in full, or at all, in price limits; and
    • relevant changes in circumstance, such as changes in legal requirements.
  3. In 2011 new legislation transferred most private sewers and lateral drains and pumping stations that connect to the public sewer network to the ownership of the regulated sewerage companies in England and Wales and required them to adopt pumping stations that form part of those sewers or drains by 1 October 2016.
  4. The Thames Tideway Tunnel is a response to the fact that London’s sewerage system can no longer cope with its growing population and the volumes of sewage produced. When there is significant rainfall the sewers cannot cope and sewage discharges into the Thames. In 2005 the UK government was informed by the European Commission that it was in breach of the Urban Wastewater Treatment Directive (UWWTD). The 25km long Thames Tideway Tunnel is the proposed solution to that problem. The Government has endorsed the need for the Thames Tunnel as the best value solution to meet the requirements of the UWWTD. Further details about the Thames Tideway Tunnel can be found on www.gov.uk
  5. The Environment Agency (EA) charges abstraction licence holders to fund the costs of the EA in ensuring water resources are managed effectively. Since 2008 they have charged an Environmental Improvement Unit Charge (EIUC) to cover the costs of compensating abstractors when they compulsorily vary or revoke abstraction licences to reduce the risk of environmental damage caused by taking too much water. Further details of these charges are available on http://www.environment-agency.gov.uk/business/regulation/38809.aspx
  6. In 2009, Thames Water proposed increasing bills by an average of 17% above inflation between 2010–15.Ofwat’s challenge at the time meant that Thames Water was allowed to increase bills by an average of around 3% above inflation in the 2010 – 15 period. Price limits were set by Ofwat in 2009 for the period 2010 – 15. More details of its decisions are available to view onwww.ofwat.gov.uk
  7. Media enquiries to Ofwat Press Office on:
    Benedict Fisher 0121 644 7642 / [email protected]
    Harbinder Babra 0121 644 7616 / [email protected]