Watchdog rejects water bill rise

Updated: 

Thames Water results

Thames Water's bid to hike customers' water bills by an extra £29 next year has been thrown out by the industry regulator.

Ofwat said the 8% one-off increase to households' average bills of £354 could not be justified, confirming last month's draft ruling against the group.

The water and sewerage company, which serves about 14 million customers in and around London, had asked for permission to raise prices because of cash-strapped customers failing to pay t heir bills and the cost of a super-sewer under London.

Thames Water can still raise next year's bills by up to 1.4% above RPI inflation - currently running at 3.2% - meaning customer face a potential increase of around 4.6%, or £16, from April.
Ofwat chairman Jonson Cox recently wrote to water firms asking them to consider whether they need to increase their bills by the full amount allowed "given the hard time their customers are facing".

Soaring utility bills have taken on added significance as inflation far outstrips meagre increases in wages, with Labour leader Ed Miliband pledging to tackle the "cost of living crisis".

Big energy firms including British Gas owner Centrica and Southern Electric parent SSE are forcing through bill increases of around 9-10%.

Ofwat chief regulation officer Sonia Brown said: "We said we would challenge Thames's application, in the interests of customers. We did just that and on the evidence provided, we are not convinced that an extra bill increase is justified."

Under rules set in 2009, Thames is allowed to hike bills by up to 1.4% above retail prices index (RPI) inflation, based on the November 2013 figure. RPI inflation is currently running at 3.2%, according to September figures, although is forecast to fall slightly.

Ofwat's decision is final, but Thames Water could appeal to the Competition Commission.

The company said: "We will review the decision carefully before deciding on our next steps."

Thames Water is subject to a five-year price control period that runs out in 2015 but had asked for more money to cover costs that could not be quantified at the time this was set in 2009.

It said the biggest item was £273 million spent acquiring land for the Thames Tideway Tunnel, a major new sewer development.

And it said £16 of the extra £29 was accounted for by increases in bad debt - when customers fail to pay their bills - due to the economic downturn.

Separately, the regulator is also looking at whether Thames Water has "benefited from wider economic circumstances beyond its control" - focusing on whether it has benefited from ultra-low cost of borrowing for big corporations.

Thames Water is owned by Kemble Water Holdings, which was formed by Australian investment firm Macquarie Group and bought the utility group in 2006.

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