Ofwat poised to refuse most suppliers’ requests for big price rises

<span>Thames Water faces nationalisation unless it can attract vast quantities of fresh capital.</span><span>Photograph: Maureen McLean/Rex/Shutterstock</span>
Thames Water faces nationalisation unless it can attract vast quantities of fresh capital.Photograph: Maureen McLean/Rex/Shutterstock

Ofwat is poised to refuse most water companies’ requests to ratchet up consumer bills, with some getting as little as half of what they have asked for, the Guardian has learned.

The decision from the water watchdog for England and Wales, Ofwat, has been formally delayed until 11 July because of the general election. Its verdict, known as a draft determination, comes amid a growing crisis in the water sector.

Britain’s biggest water monopoly company, Thames Water, which serves more than 16million customers in the London and Thames Valley regions, faces nationalisation unless it can attract vast quantities of fresh capital. It has requested bill rises of 59% – after accounting for inflation – from the regulator.

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These figures have been rejected by Ofwat based on the latest iteration of Thames’s business and turnaround plans. The documents were described as a “microwave job”, according to sources who have reviewed them. They include “fag-packet figures” and reflect a board whose members appear determined to “sit on a deckchair on the Titanic”, the same sources said.

Whitehall officials have been increasingly concerned about the politicisation of any nationalisation. The bulk of Thames’s £15bn debt would be pulled on the UK’s balance sheet under renationalisation plans seen by the Guardian, causing a headache for any government facing already straitened public finances.

Ofwat is taking advice from the investment bankers Lazard in a bid to avoid the “worst-case scenario” of Thames being pulled into the special administration regime. Lazard is tasked with finding a sweet spot where Thames Water is attractive for investors, but minimises the pressure on consumer bills, sources said.

The delay to the publication of the bill increases that companies will be allowed to impose on consumers will add to Thames’s challenges, sources at the supplier said. It will affect Thames’s ability to raise capital as it will struggle to offer a clear picture of its position to prospective investors, they added.

Southern Water has requested the highest increase in bills among the utility companies of 91% to £915 a year, while Wessex Water has requested a 50% increase to £822 a year. Thames Water’s is the second highest request for an increase in percentage terms, at 59% to £749, according to figures from the Consumer Council for Water.

Rothschild, another investment bank, is advising Thames. Rothschild also advised on the privatisation of Thames in 1989.

A Thames Water spokesperson said that any comment before the Ofwat draft decision was published was “premature”.

An Ofwat spokesperson said: “Thames Water is a business with a regulatory capital value of £19bn, £2.4bn of liquidity available, annual regulated revenue of £2bn and a new leadership team. They must continue to pursue all options to seek further equity. Safeguards are in place to ensure that services to customers are protected, regardless of issues faced by the shareholders.”

Estimates of bill increases requested by companies

  • Southern Water – 91% to £915

  • Thames Water – 59% to £749

  • Hafren Dyfrdwy – 56% to £676

  • Severn Trent – 50% to £657

  • Wessex Water – 50% to £822

  • Yorkshire Water – 46% to £682

  • Dŵr Cymru – 43% to £702

  • United Utilities – 38% to £666

  • South East Water – 35% £330

  • Pennon – 33% to £644

  • Portsmouth Water – 31% to £157

  • SES – 30% to £315

  • Anglian Water – 29% to £682

  • Northumbrian Water and Essex & Suffolk Water – 26% to £530

  • Affinity Water – 25% to £294

  • South Staffs & Cambridge Water – 24% to £221
    Source: Consumer Council for Water
    Data note: The figures are estimates which include forecasts for inflation of 2% a year up to 2030 to requests from water companies submitted to Ofwat.