Ofwat is poised to reject most water companies’ requests to increase consumer bills, with some getting as little as half of what they asked for, the Guardian has learned.
A decision by the water watchdog for England and Wales, Ofwat, has been formally delayed until July 11 due to the general election. His verdict, known as a draft decision, comes amid a growing crisis in the water sector.
Britain’s biggest water monopoly, Thames Water, which serves more than 16 million customers in the London and Thames Valley regions, faces nationalization unless it can attract a huge amount of fresh capital. It demanded a 59% increase in bills from the regulator – after accounting for inflation.
These figures were rejected by Ofwat based on the latest iteration of the Thames business plans and turnaround plans. The documents were described as “microwave work,” according to sources who reviewed them. They include “package figures” and reflect a board whose members appear determined to “sit on a deckchair on the Titanic”, the same sources said.
Whitehall officials are increasingly concerned about the politicization of any nationalisation. The bulk of Thames’ £15bn debt would be pulled onto the UK balance sheet under renationalisation plans seen by the Guardian, causing a headache for any government facing already strained public finances.
Ofwat is taking advice from investment bankers Lazard in a bid to avoid a “worst-case scenario” of Thames being dragged into special administration. Lazard is tasked with finding the sweet spot where Thames Water is attractive to investors but minimizes pressure on consumer bills, the sources said.
The delay in publishing the law increases which companies will be able to impose on consumers will add to Thames’ challenges, supplier sources said. It will affect Thames’ ability to raise capital as it seeks to offer potential investors a clear picture of its position, they added.
Southern Water has asked for the highest bill rise among energy companies at 91% to £915 a year, while Wessex Water has asked for a 50% rise to £822 a year. Thames Water’s is the second highest request for a percentage increase, up 59% to £749, according to figures from Consumers Water Council.
Rothschild, another investment bank, advises Thames. Rothschild also advised on the 1989 privatization of Thames.
A spokesman for Thames Water said any comment before Ofwat’s draft decision was published was “premature”.
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An Ofwat spokesman said: “Thames Water is a business with a regulatory capital value of £19bn, available liquidity of £2.4bn, annual regulated income of £2bn and a new management team. He must continue to pursue all avenues to seek further justice. Safeguards are in place to ensure that customer service is protected, regardless of the issues that shareholders face.”
Bill increase estimates requested by companies
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South Water – 91% to £915
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Thames Water – 59% to £749
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Hafren Dyfrdwy – 56% to £676
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Severn Trent – 50% to £657
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Wessex Water – 50% to £822
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Yorkshire Water – 46% to £682
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Dŵr Cymru – 43% to £702
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United Utilities – 38% to £666
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South East Water – 35% £330
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Pennon – 33% to £644
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Portsmouth Water – 31% to £157
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SES – 30% on £315
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Anglian Water – 29% to £682
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Northumbrian Water and Essex & Suffolk Water – 26% to £530
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Affinity Water – 25% on £294
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South Staffs & Cambridge Water – 24% to £221
Source: Consumer Council for Water
Note on data: Data are estimates which include forecasts of inflation of 2% per annum until 2030 based on water company applications submitted to Ofwat.