Customers face water bills rising by an average of 36% by 2030 after Britain’s water regulator agreed how much electricity companies in England and Wales can increase their prices.
Thursday’s decision, which Ofwat takes every five years, comes amid growing public anger over environmental pollution and service disruptions and political scrutiny of the industry. Meanwhile, Thames Water, the UK’s largest water company, is on the brink of bankruptcy and is trying to block a temporary re-nationalisation.
Ofwat itself has been criticized by water companies for undermining the sector’s attractiveness to investors, and by activists for not taking responsibility for their own failures.
The Labor government has signaled that regulators could be reviewed or replaced under a wide-ranging review of industry oversight.
And while the rate increases on top of the effects of inflation are likely to anger customers, they are far from what some troubled utilities, such as Thames Water, have demanded.
How will water companies be affected?
Debt-stricken Thames Water had lobbied for a 53% increase in the bills consumers pay by 2030, but the increase was capped by the regulator at 35%, meaning customers’ average annual bill would be £436 by 2030. from 588 pounds.
The power company, which serves 16 million customers in and around London, will also face an £18 million fine from Ofwat for improperly paying dividends to its holding company. This is the first time regulators have imposed fines on power companies that pay dividends unrelated to business performance.
Meanwhile, Thames Water is seeking approval for a £3bn emergency loan from senior creditors while seeking to raise fresh capital from new investors. The company previously acknowledged that both processes could be affected by Ofwat’s decision on the bill, but said it would take time to fully understand Thursday’s news.
Water companies dissatisfied with the proposals can appeal Ofwat’s decision by requesting a referral to the Competition and Markets Authority by 18 February 2025.
Chris Walters, Ofwat’s senior director of price reviews, said it was “very difficult” to predict how many companies would appeal, but said there was a huge gap between the amount requested and the amount ultimately allowed. He pointed out that there were “three or four” companies.
Southern Water is the company with the most increases approved, but its tight financial situation is also under scrutiny. They proposed an 83% price increase, but were approved for a 53% price increase. Chief executive Lawrence Gosden said the company recognized that “increasing prices will not be easy on customers.”
He spoke after 58,000 households served by Southern Water were left without water due to a technical fault.
The power company, owned by Australian infrastructure investor Macquarie, will be the first company to be brought before a cross-party select committee in January as MPs consider reforms to the sector.
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Other water companies had mixed reactions to Ofwat’s announcement. Anglian Water, South West Water and Severn Trent welcomed the proposals, as did water industry trade body Water UK.
A Water UK spokesperson said: “After 10 years of cuts, Ofwat has finally listened to the public’s anger and agreed to quadruple much-needed investment in our aging infrastructure.” said.
What is political influence?
The Labor government has found itself in the awkward position of coming into power after Ofwat approved a major rise in water prices for a public already furious about the state of Britain’s waterways.
Environment Secretary Steve Reid issued a statement saying people were “justifiably angry” about the water industry’s performance and sought to blame the previous Conservative government.
“Water companies are irresponsibly diverting customer funds to line the pockets of their bosses and shareholders,” he said. “This Labor government intends to lock in money earmarked for investment so it can never be diverted to bonuses or dividends to shareholders.”
Mr Reid has already set up an independent commission into the water sector and its regulation, led by former Bank of England deputy governor Sir John Cunliffe. The government has not ruled out the possibility of reviewing or abolishing Ofwat.
One government official sought to downplay the scale of the bill’s increase, which equates to an average of around £3 a month per household, and said it would help repair crumbling infrastructure, reduce sewage runoff and create cleaner rivers, lakes. , said it will lead to the sea.
Labor is ignoring opposition demands to bring the industry back into state ownership.
On Thursday, Green Party co-leader Adrian Ramsay called on the government to “end this failing model” and renationalise the water company, which was privatized in 1989 under Margaret Thatcher.
What caused the public backlash?
Widespread anger over polluted waterways and the £80bn in dividends water companies have paid out to shareholders since privatization has led to the formation of a patchwork of dedicated campaign groups across the UK.
“It is absolutely disgraceful that after 35 years of bonus scandals, sewage spills and huge dividends, water companies are still trying to reap the rewards of huge, inflation-busting bill increases from Ofwat,” the group said. We Own It chief campaigner Matthew Topham said. Movement for public ownership of public services.
Feargal Sharkey, a former rock musician and now one of Britain’s most prominent water activists, was cited by the Environmental Protection Agency earlier this week for failing to comply with environmental laws on multiple fronts, including by the water regulator. In response, he blamed Ofwat. Government agency.
“For 35 years, they deliberately and blatantly failed to enforce the law,” he said.
Mr Shirkey added that Ofwat had presided over “what is now clearly nothing but a mess and a systematic rip-off of ratepayers and the environment” and called for its abolition.
In response, Ofwat referred to a statement from chief executive David Black on Thursday, saying the regulator would “monitor and hold companies to account for their investment programs and improvements”.
What was the market and investor reaction?
As investors and analysts continue to scrutinize data points and update models, it is clear that the final decisions will have fundamentally different impacts on different companies.
For the UK’s three listed water utilities, Severn Trent, United Utilities and Pennon Group, which are some of the sector’s top performers, initial positive reaction from investors led to a London market on Thursday. Shares rose slightly in trading.
Dominic Nash, head of European utilities research at Barclays, said Ofwat had provided “a lot of clarity” on questions arising from the July draft decision and that “investors like clarity”. Ta.
“I think this will provide significant benefits to the companies that perform better,” he said.
Ofwat announced on Thursday that equity investors could receive a return on investment of 5.1% (compared to July’s return on investment of 4.8%).
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“It’s clearly a significant improvement from where it was at the time of the draft, and that’s how the market sees it today,” said Alex Wheeler, utilities analyst at RBC Capital.
But for Thames Water, the sector’s most distressed company, Ofwat’s decision weighs heavily on its financial position as it prepares for an emergency loan and aims to raise new equity capital. It does little to improve. The company’s bond prices were little changed Thursday.
One high-yield bond investor said the outlook for the Thames looked as “bleak” as ever.
Additional reporting from London by Patrick Maturin
