IB 25/13 Ofwat consults on possible ‘substantial favourable effect’


In September, Ofwat announced that it was looking at the extent to which Thames Water 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.

To inform its analysis, Ofwat has today published a short, technical consultation to hear interested parties’ initial views on any relevant changes in circumstances, beyond Thames Water’s control, which might have benefited the company since limits on prices were set in 2009. The consultation closes on 7 November.


Notes to editors


  1. The consultation is available to view on www.ofwat.gov.uk. If Ofwat decides to proceed with a ‘substantial favourable effect’ there will be a further opportunity for interested parties to present their views through consultation.
  2. As Thames Water is the only company to have applied for an additional increase in bills before the next price review, Ofwat will only examine whether there is a case for clawing back gains through the ‘substantial favourable effect’ mechanism from Thames Water.
  3. This is a separate process to Ofwat’s consideration of Thames Water’s application for an interim increase in prices next year. 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. Ofwat’s 2009 decision means Thames Water 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.
  4. Ofwat published a draft decision on Thames Water’s application for an interim price increase in October. It is now considering new evidence to assess whether it justifies an increase in bills and is due to make a final decision in early November. Ofwat plans to conclude both processes in good time, to allow affected parties to plan for the final 2014-15 price limits.
  5. The current average Thames household bill is around £354.
  6. 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.
  7. Media enquiries to Ofwat’s press office:
    Benedict Fisher 0121 644 7642 / [email protected]
    Harbinder Babra 0121 644 7616 / [email protected]