Thames Water has said that preventing it from charging customers significantly higher rates, as the company has proposed, would not enable it to overcome its funding crisis, adding an extra £228 a year to household bills.
The heavily indebted company said its activities were “neither financeable nor investable” due to the bill increase proposed by regulator Ofwat.
The company said Ofwat’s proposals meant its five-year plans were “unworkable” and that they would “also prevent the company from turning around and recovering”. This risked Britain’s largest water company entering a government-led insolvency process and its debts falling onto the taxpayer’s balance sheet.
If Thames were not allowed to increase electricity bills by 59 percent – or £228 a year by 2030 – “it would also prevent the company from turning around and recovering.”
The company has said it only has enough money to keep operating until next June. Ofwat rejected a request from Thames in July to increase bills by 44%, saying it would only allow 22%, a £99 increase to £535 by 2030.
The water industry in England and Wales has submitted comments on Ofwat’s draft decision on individual company bill increases, which the regulator is prepared to allow in return for investment in infrastructure amid widespread anger over leaks and sewage discharges.
The companies asked Ofwat for permission to spend £104.5 billion in the next investment cycle, which would increase the average household water bill by £144 over five years.
But the plans were provisionally scaled back in a “draft” from the regulator last month, which set a budget of £88 billion for the sector and called for the average bill increase to be capped at £94, or £19 a year, for that period. Ofwat will review the companies’ applications and make a final decision in December.
Water UK, a water industry lobby group, said Ofwat’s proposals would “jeopardise urgent improvements” amid growing public outrage over the environmental damage caused by water companies’ activities.
David Henderson, CEO of Water UK, said: “Water companies want to invest £105 billion to support economic growth, build more homes, secure our water supplies and end sewage discharges into our rivers. Ofwat wants to cut that investment by £17 billion – a record amount.”
“Ofwat has a difficult task, but investors are telling us that Ofwat needs to change its approach. If the right conditions for investment are not created, our environment and our economy will pay the price.”
Henderson also warned that Labour’s key housing target – building 1.5 million homes over the next five years – could not be achieved unless water companies were prevented from significantly increasing their bills.
Thames had been particularly criticised by Ofwat. In July, Chris Walters, a board member of the regulator, said the plans were “late” and “incomplete”.
“Overall, there was a lack of ambition. Parts of it certainly did not have the approval of the Thames board and it is difficult for us to stand behind a plan that the board does not stand behind,” he said at the time.
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On Wednesday, Thames chairman Adrian Montague sought to counter suggestions of a board split, saying the latest plan had “the full support of the board”. Meanwhile, Thames chief executive Chris Weston said the latest plan was “highly ambitious”.
Thames is already subject to special measures aimed at increasing supervision by Ofwat to gain an accurate picture of its operational and financial challenges.
The company’s debt has grown to over £15 billion in recent years amid concerns about the state of its assets, which serve more than 16 million customers in London and the Thames Valley.
The yield on some of Thames’ bonds rose on Wednesday following recent exchanges between the company and its regulator, reflecting the increased risk for investors holding its debt. The yield on a bond due 2027 rose more than a percentage point, to 16.08% from 15% before the statements were released.
An Ofwat spokesperson said: “We have received responses from many organisations including water companies, customers, environmental and consumer organisations and investors. These inevitably reflect a wide range of views on our proposals.
“We will carefully review all of these responses over the next three months and announce our final decisions on December 19.”
