Thames Water price rise bid criticised by consumer body

 

The cost of a major new sewer is one reason for the request to increase bills, as Thames Water's Richard Aylard explains

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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

Source: Ofwat

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.

Shezmina Alibhai, laundrette owner: ''It's impossible for me to take that sort of increase''

Additional costs

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.

Analysis

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.

 

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  • rate this
    0

    Comment number 823.

    If Miliband really does want to win the next election, he has to differentiate Labour from the Tories, this policy would certainly see the Tories off:

    After forming a People's Bank, legislation would be introduced to force all of the Utilities, i.e, gas, water, electricity and trains to shift their accounts to the new bank. That would make them contribute to their own purchase - how poetic.

  • rate this
    0

    Comment number 822.

    Water should be free.

  • rate this
    0

    Comment number 821.

    Themes Water would be better spending its time fixing leaks properly. Its record in leakage is the worst in the country. Consumers want good value for money before being expected to pay more for what is a mediocre service currently in my opinion.

  • rate this
    0

    Comment number 820.

    A review of global capitalism in it's current form is required. The Banking Crisis of 2008 was clearly not a big enough wake up call for the utilities firms and their investment bank backers:

    http://www.morningstaronline.co.uk/news/content/view/full/136417

    The UK "democratic" system is there to maintain the the status quo.

    Awful.

  • rate this
    0

    Comment number 819.

    Sure is a funny move given they'll be needing to upgrade so much of the water treatment equipment to handle the mess fracking is about to make.

  • rate this
    0

    Comment number 818.

    If its for profit it should be subject to competition. Otherwise it should be provided on a non-profit basis. Necessary infrastructure should be funded by government from taxes meaning the most able pay the most. Privatization of effective monopolies is unacceptable Thatcher legacy.

  • rate this
    +2

    Comment number 817.

    If enough people refused to pay they would take notice.

    Give it six months of refusal to pay and the greedy investment banks and pensions funds (who use your money against you to fund this charade) will be begging the bankrupt British State to bail them out.

    Six years later (see RBS etc) the UK Govt will sell you share at a loss to the same blood suckers.

    Governments are implicitly selfish.

  • rate this
    +1

    Comment number 816.

    Re-nationalise all utilities. There is no genuine competition between the providers of water, they reached an agreement a long time ago.to rake off as much profit as poss while providing a minimum outlay on infrastructure maintenance. And what choice do you have?

    Put it back under state, and your, control. Or prepare for yet more of the same only even more expensive.

  • rate this
    +1

    Comment number 815.

    So they made £500 some million profit last year and how many hundreds of millions in the previous 3-4 years. Why couldn't they have used 25% of profits each year to pay for this?

  • rate this
    +3

    Comment number 814.

    I seem to recall reading that the cost of these investments had been used to offset their corporation tax liabilities now they want us to pay the cost of it, smacks a bit of wanting your cake and eating it.
    Also £29 times 14 million customers is equal to £406m so they can take it out of their profit of £550m last year and STILL be left with £144m to split between shareholders

  • rate this
    +2

    Comment number 813.

    There is a rapidly growing dislike for the privatised Utilities that were taken from us by the Tories and are now ripping us off at every opportunity. We need a People's Bank which can be run for the benefit of us all and not just for the city spivs. Profits from the Peoples Bank can be put towards buying back the monopolies and putting them back into public ownership.

  • rate this
    +1

    Comment number 812.

    If the public are going to be continuously ignored by politicians on the topic of privatization. Then it is about time we start giving them something to think about. One way would be to collectively refuse to pay our water bills. Water is after all, a human right. To turn off OUR water supply would be in breach of our human rights(what rights we have left btw). Maybe then we will be heard.

  • rate this
    +3

    Comment number 811.

    Yet another ridiculous privatisation by the Tories coming home to roost! It was all short-termism and we are paying the price for it now. It was entirely wrong to privatise and break up the utilities.

  • rate this
    +1

    Comment number 810.

    Surge in bad debts? If every business worked on the basis of "x & y didn't pay so we'll charge a,b &c extra to make up for the loss" while still making large profits for shareholders (who appear to be expected to take no risk whatsoever) and paying fat salaries and bonuses to managers to ensure this regime is perpetuated, is it any wonder that few people trust big businesses?

  • rate this
    +1

    Comment number 809.

    they earn millions and millions each year and they keep asking for more to offset the costs of some project which is clearly a very weak excuse to push the taxpayer out of even more of their money. in this day and age where the autocratic leadership encourages utility companies to fleece their customers and not give a damn to what we would like, typical.
    They punch you in the face and you take it?

  • rate this
    0

    Comment number 808.

    Water is a natural resource that we all need to live - there is no real 'choice' when it comes to going without water. Successive Governments have failed in their fundamental duty to safeguard, for the people, this basic right.

  • rate this
    +1

    Comment number 807.

    Why is it when the price of essentials such as water, energy and food rise people complain yet when the price of another essential rises, shelter, it is hailed as wonderful?
    Answers on a postcard please to George Osborne, the minister property price bubble, Funding for Lending and Help to Buy.

  • rate this
    +2

    Comment number 806.

    What?
    Nothing in your list for Welsh water supplying Liverpool or figures for the rest of the UK including Scotland and NI Ireland?
    Not exactly a BALANCED overall report on what has happened to the overall f the water costs throughout the UK? .or is it just
    ............,selective editing again ?

  • rate this
    +2

    Comment number 805.

    Scandalous. In Scotland we have our water rates included in the council tax. I truly sympathise with Thames Water customers - they're victims of a despicable shower of capitalists who are out to make money out of people who can least afford it. Lets's hope OFWAT sees sense or else they'll be yet another incompetent regulator. They're aptly named - regulator OF WHAT?

  • rate this
    +2

    Comment number 804.

    Maybe Thames Water should have taken it out of the £1.5 billion in dividends its paid to its shareholders over the last few years?

 

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