Ofwat: Suppliers must hit green targets if they want to increase water charges
Ofwat has challenged the water industry to deliver on pledges to protect the environment and clamp down on sewage overflows, as it weighs up whether to allow suppliers to raise charges.
The regulator will make a final decision on the next pricing window, covering 2025-2030, in just over 12 months’ time, which determines how much companies can charge customers.
Suppliers are pushing for higher customer bills to help fund turnaround plans for fixing the country’s leaking, creaking infrastructure — as much as 40 per cent in some cases, according to reports in the summer.
The sector is under immense pressure to address sewage leaks in rivers and water waste, but is weighed down by a huge debt pile, with investment failing to keep up with dividends for shareholders since privatisation.
The debt pile among the Big Nine suppliers is estimated at £54bn, with the UK’s largest firm Thames Water struggling under its own £14bn debt burden.
Water companies teamed up earlier this month to unveil a £96bn investment plan to pay for upgrades and tackle sewage discharges — but confirmed that customers will be on the hook.
Consumers will be asked to pay higher bills to pay for the upgrades, initially rising £84 per year by 2025 compared with current prices, and as much as £130 per year by the end of the decade.
This is on top of previous £10bn commitments from the sector to tackle storm overflows and upgrade the UK’s leaky pipes.
These calls for higher bills have also been outlined in business plans from suppliers outlining their proposed spending commitments — with most firms still underspending their investment allowance.
The latest Water Company Performance Report showed that after the first three years of the 2020-25 period, 13 out of the 17 water and wastewater companies had not spent their forecast enhancement allowance.
Ofwat and the Consumer Council for Water have required all companies to hold public meetings this autumn, so their plans face local scrutiny — with the feedback included in Ofwat’s own analysis as it makes draft decisions on suppliers’ business plans from May to June next year.
Chris Walters, senior director for Ofwat’s price review, said: “The water companies have set out their proposals for the coming price control period, which include record levels of investment. Companies should not wait for our decisions on these proposals.
“We expect them to be taking action now to deliver. And where they do not deliver, we will ensure that the appropriate regulatory mechanisms are in place to protect customer interests against delayed or late delivery.”
It comes the same day as Welsh Water admitted to the BBC that dozens of its treatment plants have been illegally spilling untreated sewage for years.
Earlier this year, Cathryn Ross, co-interim chief executive of Thames Water that it expects customers will have to face higher bills.
“It is an unfortunate truth that the only source of ultimate funding for that in the current model is the customer,” Ross told MPs on the Environment, Food and Rural Affairs Committee.
A Water UK spokesperson said: “Water companies have proposed record levels of investment to transform rivers, cut leakage by a quarter and build 10 new reservoirs.
“Companies are committed to going further and faster wherever they can but the only way this can be achieved is through investment. Companies look forward to working with the regulator to ensure these ambitious plans are approved in full.”