PN 09/14: Water bills held down

Ofwat has today finalised decisions which mean average bills for water and wastewater customers in England and Wales will fall by around 5%, before adjustments for inflation, between 2015 and 2020. This would see average bills fall by around £20 from £396 to £376.

At the same time customers will see improved levels of service. Companies are set to spend more than £44 billion or around £2000 for every household in England and Wales over the next five years. By 2020 customers will benefit from substantial improvements in areas of service that really matter to them, including:

• more than 370 million litres a day saved by tackling leakage and promoting water efficiency – enough water saved to serve all of the homes in Birmingham, Manchester and Leeds;
• a reduction in the time lost to supply interruptions (down on average 32%);
• 4,700 fewer properties flooded by sewer water; and
• cleaner water at more than 50 beaches.

The number of people benefiting from financial support will more than double to around 1.8 million by 2020. Currently around 760,000 people benefit from some form of financial support from their water company. Over the next five years, companies are putting in place measures, such as social tariffs, which are forecast to help an additional one million people.
Following direct engagement with a quarter of a million customers across England and Wales, companies submitted their plans to Ofwat in December 2013, proposing bills drop by almost 2% in real terms. Ofwat has worked with companies since then to deliver a further £3 billion savings for customers. This means average bills will be going down by 5% in real terms, and these savings will also help reduce bills after 2020. As well as challenging on price, Ofwat has also made sure companies are stretching themselves on service. This includes larger reductions in supply interruptions, pollution incidents, and further improvements to drinking water quality.

Ofwat’s announcement includes the decision to lower further the weighted average cost of capital (WACC), which is the minimum rate of return that lenders or investors require to support investment in the sector. Since its initial proposal of a WACC of 3.85%, Ofwat has updated its decision to reflect current market evidence on required returns, resulting in a WACC of 3.74%.

Jonson Cox, Chairman of Ofwat said:

“This is an important step in maintaining customers’ trust and confidence in the water sector. We set out to deliver a challenging but fair outcome. We are requiring companies to meet higher service standards and deliver on their promises to customers. We are bringing down bills so customers can expect value for money, while investors can earn a fair return. Companies will need to stretch themselves to deliver much more with the same level of funding as in previous years. We will achieve more resilient infrastructure and better service as a result.”

Cathryn Ross, Chief Executive of Ofwat said:

“With bills held down by five per cent and service driven up over the next five years, customers will get more and pay less. Where companies stepped up to do the best they could for their customers we did not need to intervene. But where companies fell short we stepped in to make sure customers get a good deal. Now the hard work begins. Companies will only build trust and confidence with their customers if they deliver. Those who do can look forward to fair returns, while those that don’t will be hit in the pocket and face a tough five years ahead.”

New charges will come into effect in April 2015. Companies have two months in which to accept Ofwat’s final determination, or seek a referral to the Competition and Markets Authority (CMA).

-ends-

Final determination: average bill changes (excluding inflation)

All figures are in 2014/15 prices. Figures may not add up due to rounding

* The average combined customer bill for South West does not reflect the £50 per customer Government contribution towards household bills. This addresses the significant investment needed in the infrastructure which was inherited by the company at privatisation to meet environmental and drinking water quality standards.

** Thames Water’s figures includes the costs for the preparatory works to build the Thames Tideway Tunnel – a 25km sewer to deal with the problem of too much sewage overflowing into the River Thames. However, it does not include costs for the construction of the tunnel. This is because the project will be financed and delivered by an independent infrastructure provider (IP). The IP is due to be appointed in 2015.

Notes to editors

1. Please note all bills are in 2014/15 prices. Figures may not add up due to rounding
2. In addition to a positive or negative allowance from Ofwat, companies can raise their bills in line with inflation (RPI) on a year-by-year basis.
3. Individual household customers’ water bills may vary depending on their water and wastewater usage. Some household customers receive bills from separate water and wastewater providers.
4. Ofwat sets limits on charges for water and wastewater services every five years. Ofwat’s draft determinations were published for consultation in August.
5. It is for companies to decide each year the level at which they will set charges for customers,  making sure they do not exceed the overall revenue that Ofwat has allowed them in its final determinations. The first charges companies will set consistent with this final determination will be in April 2015.
6. Water and sewerage companies have directly engaged with more than 250,000 customers during this price review process. This review has also seen the creation of customer challenge groups – independently chaired panels made up of a cross section of customers and their representatives to challenge whether companies’ plans properly reflect customers’ views.
7. This release may be of interest to those following these companies: Affinity Water, Anglian Water Services Ltd, Bristol Water plc, Cholderton and District Water Company Ltd, Dee Valley Water plc, Dŵr Cymru Cyfyngedig (Welsh Water), Northumbrian Water Ltd, Portsmouth Water plc, Sembcorp Bournemouth Water Ltd, Severn Trent Water Ltd, South East Water Ltd, Southern Water Services Ltd, South Staffordshire Water plc, South West Water Ltd, Sutton & East Surrey Water plc, Thames Water Utilities Ltd, United Utilities Water Ltd, Wessex Water Services Ltd, and Yorkshire Water Services Ltd.
8. 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 finance them.
9. Further details of Ofwat’s final determination are available on www.ofwat.gov.uk/pricereview/pr14/finaldet
10. Media enquiries to Benedict Fisher on 0121 644 7642 / [email protected]