Notices inform the public about work on a replacement outfall pipe that releases excess stormwater into the sea near the Swalecliffe wastewater treatment works, in Whitstable, Britain, on July 22.Chris J Ratcliffe/Reuters
Britain’s water regulator said it would allow bills to rise by just over a third in the next five years to fund a higher level of investment than originally planned, with the aim of fixing the country’s broken water sector.
The average increase of 36 per cent before inflation, equivalent to a £31 ($39.18) a year increase over five years, compares to the 44 per cent average requested by companies and the 21 per cent the regulator had proposed in July.
The pumping of raw sewage into rivers and seas has become a major scandal in Britain, with privatized water companies accused of prioritizing dividends over investment, leaving the infrastructure to degrade.
The sector has blamed the regulator for wanting to keep bills low and the industry, saddled with tens of billions of pounds of debt, is now under pressure to fund an overhaul of pipes and treatment plants.
Environmental groups, however, have questioned whether the companies can be trusted to spend the extra money to stop sewage spills after repeated failures over the years.
Thames Water, the country’s biggest supplier, is at risk of nationalization.
Ofwat, the regulator, said on Thursday that the bill increases would lead to a £104-billion ($131-billion) upgrade to cut sewage spills. It said a claw back mechanism would mean any money not spent on investment would be returned to customers.
Under the final plan, none of the companies will receive bill rises as high as they had asked for. Thames Water, which had argued for a 53 per cent increase, will be allowed to hike bills by 35 per cent. Southern Water which had demanded the highest increase, at 83 per cent, will increase bills by 53 per cent.
It remains to be seen whether the rise is enough to help boost stricken Thames Water’s chances of survival, which depends on it attracting over £3-billion of new equity.
Thames said it will “take time to review the determination in detail before making its response”, while another operator, Pennon, said it was also reviewing the implications.
Should any of the water companies oppose Ofwat’s final determination they have until Feb. 18 to appeal to the competition regulator.
Shares in Britain’s listed water rose in reaction to what Barclays described as a positive development for the sector. Severn Trent was up 1.7 per cent, Pennon was 1.8 per cent higher while United Utilities was up 1 per cent.
Showing its tough approach, Ofwat said in a separate statement it would fine Thames £18-million after it paid two dividends to its parent company in 2023 and 2024, a breach of obligations to link such payments to performance.
But the bill rises will anger consumers, coming after several years of a cost of living crisis when households have had to contend with surging prices in energy and food.
Ofwat chief executive David Black called for a “transformation” in the culture of the companies.
“Customers will rightly expect them (the companies) to show they can deliver significant improvement over time to justify the increase in bills,” he said.
“We will monitor and hold companies to account on their investment programmes and improvements.”
Highlighting the perilous state of the sector, thousands of Southern Water customers in Hampshire were without water on Thursday after a fault at a supply works.