8 November 2013
Ofwat has decided to turn down Thames Water’s application for an additional price increase for 2014-15.
It was for Thames to justify that this increase was in customers’ interests. Within the three month timescale for assessing the application, Ofwat found that the evidence the company submitted did not justify its proposed £29, or 8%, additional increase in customers’ bills.
Ofwat’s chief regulation officer Sonia Brown said:
“We said we would challenge Thames’ application, in the interests of customers. We did just that and on the evidence provided we are not convinced that an extra bill increase is justified.”
This is Ofwat’s final decision on this application. Thames Water now has the right to trigger an appeal to the Competition Commission.
Ofwat’s decision means the maximum that Thames can add to customers’ bills for 2014-15 is still 1.4% above inflation, as set in the 2009 price review. Last week Ofwat’s chairman Jonson Cox wrote to all water companies asking them to consider whether they needed to increase their bills for 2014-15 by the full amounts set in the last price review, given the hard time their customers are facing.
On 2 December, companies will submit their business plans for the next price review, which will cover the period from 2015 to 2020. Ofwat has called on these plans to reflect their customers’ priorities, and believes there is scope for reductions in bills from 2015. If companies do not propose reductions, they will need to fully explain to their customers why. Jonson Cox last week repeated that Ofwat will set 2015-20 prices using an independent, rigorous process. Its final decision is due on these prices by January 2015.
Notes to editors
- 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 October it made a draft decision in October to disallow Thames request for an interim increase.
- 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 meant that Thames already had an allowance to increase its charges by 1.4% above inflation in 2014-15. Thames had indicated that its application would add around a further 8% – around £29 – to the average household bill for next year. The current average Thames Water household bill is around £354.
- The three main areas of the application affecting next year’s bills where Ofwat has assessed lower allowable costs relate to Thames’ evidence of increased bad debt costs due to the economic downturn, increased costs for the transfer of private sewers, and the impact of some Environment Agency charges. Ofwat has also offset the claim for increased costs in the application with areas of lower expenditure where the company has not delivered outputs for which customers have been paying. Details of Ofwat’s final decision are available to view on www.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. It consulted on this in October and this consultation has recently closed.
- 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.
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