Thames Water price rise bid criticised by consumer body
Thames Water has asked its regulator, Ofwat, for permission to raise prices.
It wants to put up bills by about £29 per household during 2014-15, but has asked Ofwat if it can spread the rise over more than one year.
The body that represents consumers says that the increase is not justified and will hit customers who are already struggling to pay their bills.
The company says the rise is needed to cover preparations for the construction of the Thames Tideway Tunnel.
Ofwat will examine the proposal and make a decision in three months.
Average household bills in 2013-14 for combined water and sewerage providers
- South West: £499*
- Southern: £449
- Wessex: £478
- Anglian: £434
- Dwr Cymru: £434
- United Utilities: £406
- Yorkshire: £368
- Northumbrian: £359
- Thames: £354
- Severn Trent: £335
* South West customers benefit from a government contribution of £50 per year, applied from April 2013
Thames Water is part-way through a price control period, which runs from 2010 to 2015 and was agreed with the industry regulator Ofwat in 2009.
However, the agreement allows firms to ask for a price increase if they encounter costs that were not expected or quantifiable at the time of the initial price-setting decision.
Thames Water say that the average household bill of its customers is £354 per year - the second lowest in the country when compared with other companies that provide water and sewerage services.
It says that even if its application to increase prices is accepted by Ofwat, its bills will still be some of the lowest in the industry.
"At the beginning of a five-year period, there are always a small number of potentially significant costs and revenues that can be clearly identified, but not quantified," said Stuart Siddall, Thames Water's chief financial officer.
"Either the company or Ofwat can seek an adjustment, upwards or downwards, once the actual costs and revenues are known.
"That is what we are doing now."
If a price rise is allowed by Ofwat, it will apply to all of Thames Water's 14 million customers across the south-east of England.
Although much of the extra costs relate to the proposed Thames Tideway Tunnel, the company says that this is the only fair way to distribute an increase, and that the majority of its customers are situated in the London and Thames Valley area.
Thames Water says that it needs to raise prices because it has been hit by an increase in bad debt as a result of the economic downturn.
Since the price control period began, Thames Water has also taken on the £66m cost of operating an additional 40,000km of sewers transferred to it by the government in October 2011, as well an increase in the charges it pays to the Environment Agency.
However, some aspects of its business have cost less than predicted. Revenue from the sale of surplus land delivered a better-than-expected return, while the cost of dealing with sewer flooding was smaller than anticipated.
The water industry is a natural monopoly. We can't choose our water supplier. So Thames Water customers must rely upon the regulator Ofwat to fight their corner over this proposed rise in bills.
There are big questions to answer. As it spends hundreds of millions buying up land for its Super Sewer, is Thames Water getting the best possible price? It was hardly unforeseen that more customers would struggle to pay their bills during a downturn. But could more prudent management have reduced the bad debt problem?
Will other water firms make similar claims? They have until 15 September to do so. So far it looks like Thames will be the only one. Why can other firms absorb costs when Thames appears unable to do so?
Thames Water is unlikely to get the full £29 rise that it is seeking. The big question now for the company's 14 million customers is how much will the regulator allow?
The biggest single cost is the £273m spent acquiring land needed for the construction of the Thames Tideway Tunnel. The tunnel will run for 20 miles from west to east London.
The company has said that the new tunnel is needed to stop increasing amounts of sewage being discharged into the River Thames from Victorian sewers.'Not warranted'
"We knew there would be costs, but we didn't know how much they would be," said Richard Aylard, external affairs director at Thames Water.
"There were quite specifically items listed at the price agreement in 2009 that we would come back with when we knew we had the right amount."
The body that represents water and sewerage customers in England and Wales said that the rise would make things harder for customers already struggling to pay their bills.
"The magnitude of the increase is not warranted in these circumstances," said Sir Tony Redmond, from the Consumer Council for Water.
"It is the only water company, of which we're aware, which is actually planning to make this proposal to Ofwat.
"Some of the costs that may well have been unanticipated during 2009 could have been managed during the course of the whole period rather than facing them now."
Thames Water serves London, Berkshire, Buckinghamshire, Gloucestershire, Kent, Oxfordshire, Surrey and Wiltshire.