Ofwat today published a draft decision that would disallow Thames Water’s request for an interim increase in prices next year. Thames had asked to add an extra £29 or 8% to the annual average household bill. Ofwat’s draft decision is subject to a short period of technical consultation, which allows for the submission of new evidence. A final decision is due in early November.
Ofwat has examined the evidence of increased costs provided by Thames Water in its August application. Under the regulatory rules, Thames must satisfactorily demonstrate that the level of increased costs is above a certain threshold to permit any additional increase in bills between five yearly price reviews.1 This threshold equates to a bill increase of around £9 or above. Having examined Thames Water’s evidence, Ofwat believes their application falls below this threshold, with the company only providing sufficient evidence for increased costs associated with an annual bill increase of £7.
Ofwat’s Chief Regulation Officer Sonia Brown said:
“We said we would challenge Thames Water’s request. We have looked at the details and do not believe the current evidence justifies an increase in bills.”
Ofwat’s consultation on its draft decision gives all parties, including Thames Water, the opportunity to submit new evidence. Ofwat will consider any new evidence, which could then result in a change in its assessment of justifiable costs, before announcing its final decision in early November.
Notes to editors
- An application for an interim change in price limits must pass a materiality test. This test sets out that any increase in the value of relevant costs must be greater than 10% of a company’s annual turnover to trigger a change in price limits.
- The two main areas of challenge relate to Thames’ evidence of increased bad debt costs due to the economic downturn and increased costs for the transfer of private sewers. Ofwat has also looked to offset costs in the application against areas where the company has not delivered outputs for which customers have been paying. Full details of Ofwat’s draft decision are available to view onwww.ofwat.gov.uk
- Ofwat is also continuing to look at the extent to which Thames has benefited from wider economic circumstances beyond its control, and whether it can deduct these gains through an established regulatory process called the ‘substantial favourable effect’ mechanism.
- Thames Water announced its application to further increase bills in August. Ofwat set out the process for considering Thames application in September and invited initial views at that time.
- In 2009 Ofwat set limits on prices for the period 2010-15. Thames said that it has experienced changes to certain specific costs that were not taken account of 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 its application would add around a further 8% – around £29 – to the average household bill for next year. The current average Thames household bill is around £354.
- As part of the five-yearly price review process Thames and the other 18 regulated water companies, will submit their business plans for 2015 to 2020 in December. Ofwat has made changes to the way it regulates in future to make companies more efficient and customer-focused, as well as ensuring more sustainable water use. Ofwat is due to make a final decision on the future prices companies can charge by January 2015, with new bills coming into effect in April 2015.
- 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 finance them.
- Media enquiries to Ofwat press office on:
Benedict Fisher 0121 644 7642 / [email protected]
Harbinder Babra 0121 644 7616 / [email protected]