Thames Water calls for 11% price hike to pay for "super sewer"

Half-year pre-tax profits were up by nearly a fifth to £134.2 million

Tuesday 03 December 2013 10:10

Thames Water, the UK's biggest water company, wants to raise bills by more than 10 per cent above the cost of inflation over a five-year period, it has told Ofwat.

Thames Water, the UK's biggest water company, wants to raise bills by more than 10 per cent above the cost of inflation over a five-year period, it has told Ofwat.

The regulator said the company had submitted by far the highest proposed bill increase of any of the major water supply and sewerage firms that have put forward their plans for 2015-20.

Thames, which pays no corporation tax, last week announced half-year pre-tax profits were up by nearly a fifth to £134.2 million, helped by an above-inflation tariff hike. It is already at loggerheads with the regulator over customer charges.

Nine firms said they would cut bills or leave them flat in real terms over 2015-20, after Ofwat asked them to consider scaling back increases amid a squeeze on household finances.

But Thames Water said its plans to invest £2.8 billion in the Thames Tideway Tunnel, a major new sewer, mean it must add £8 above inflation for each of the five years from 2015 - and that without this, bill rises would be below inflation.

Ofwat figures show the supplier plans a 6.8 per cent real terms cut in average water supply bills but a 34.8 per cent increase for sewerage, giving an average real terms rise of 10.4 per cent.

Thames serves 14 million customers in and around London. It said its current typical £358 bill is £50 below the average for England and Wales but would increase to £398, plus inflation, for 2020.

Chief executive Martin Baggs claimed seven out of 10 customers found the plan "acceptable", with the capital's Victorian water and sewerage infrastructure in urgent need of upgrading.

He said: "It is clear that bill increases are only acceptable if they are absolutely essential, but customers have told us to avoid storing up problems for the future.

"Our plan will deliver value for money on the things our customers have told us matter most."

Last week, Thames Water said it did not expect to pay any more corporation tax for up to a decade because it planned to continue £1 billion annual infrastructure investments, meaning it can defer £20 million a year in tax liabilities.

Last month it was slapped down by Ofwat over plans for a one-off £29 bill hike for next year, because of unforeseen costs including customers failing to pay their bills, as well as the Thames super sewer.

Thames Water is owned by Kemble Water Holdings, whose investors include Australian investment firm Macquarie Group.

Proposals by Thames and its rivals set out plans for their charges for 2015-20, to which will be added the retail prices index inflation figure, which was 2.6% in October.

Northumbrian and Yorkshire said bills would be flat in real terms, with 0.5 per cent and 0.6 per cent falls for United Utilities and Southern, and a 3.8 per centdrop for Severn Trent, and 4.5% for South West.

Dwr Cymru Welsh Water plans a 4.8 per cent real terms fall, with Wessex proposing a 6 per cent reduction and Anglian a cut of 8.4 per cent.

Ofwat chairman Jonson Cox said: "Ofwat challenged companies to listen carefully to their customers in preparing their plans.

"Our board made clear that current economic circumstances gave companies an opportunity to deliver falling bills in real terms over the coming five years while maintaining substantial ongoing investment."

Ofwat chief executive Cathryn Ross said it would carry out an independent and rigorous process to analyse and challenge companies' plans "to make sure that customers get a fair deal".

The regulator said that in April it would give its judgment on the firms' plans, including "how well they have taken account of their customers' priorities".

Those judged "outstanding across the board" will be fast-tracked while those "requiring some intervention" will go through a standard process.

Any company whose plan has "significant shortcomings" will be asked to resubmit it. Final decisions on prices will be made by January 2015, with new bills due to come into effect the following April.


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