Thames Water has said it will be unable to recover from its funding crisis if it is blocked from charging customers significantly more, as it proposed to pile an extra £228 a year on to household bills.
The debt-laden company said the increase to bills that has been proposed by the industry regulator, Ofwat, leaves its activities “neither financeable nor investible”.
The company said Ofwat’s proposals meant its five-year plans were “not deliverable” and that it “would also prevent the turnaround and recovery of the company”, raising the prospect that Britain’s biggest water supplier could collapse into a government-handled administration process, with its debts added to the taxpayer’s balance sheet.
If Thames was not allowed to raise bills by 59% – £228 a year by 2030 – it “would also prevent the turnaround and recovery of the company”.
The company has said it has enough funds to continue its operations only until next June. Ofwat refused a request from Thames to increase bills by 44% in July, saying it would only allow 22%, equivalent to a £99 increase to £535 by 2030.
The water industry in England and Wales submitted responses to Ofwat’s company-by-company draft decision on bill increases, which the regulator will allow in return for investment in infrastructure amid widespread anger over leaks and sewage dumping.
The companies asked Ofwat for permission to spend £104.5bn over the next investment cycle, which would push up the average household water bill by £144 over five years.
However, the plans were provisionally reined in by the regulator in its “draft determination” last month, when it set out a budget of £88bn for the sector and called for the average bill increase over the period to be capped at £94, or £19 a year. Ofwat will study the companies’ submissions and make a final decision in December.
Water UK, an industry lobby group, said Ofwat’s proposals put “urgent improvements at risk”, amid growing public outrage at the environmental harm caused by water companies’ activities.
David Henderson, Water UK’s chief executive, said: “Water companies want to invest £105bn to support economic growth, build more homes, secure our water supplies and end sewage entering our rivers. Ofwat wants to cut that investment by £17bn – a record amount.
“Ofwat has a difficult job, but investors are telling us that they need Ofwat to change its approach. Unless the right conditions to invest are put in place, our environment and our economy will pay the price.”
Henderson also warned that Labour’s key housebuilding target – to build 1.5m homes within the next five years – will not be met if water companies are prevented from significantly increasing bills.
Thames had been singled out for criticism by Ofwat. In July, Chris Walters, a board member at the regulator, said its plans were “late” and “incomplete”.
“Overall, it lacked ambition. Parts of it certainly did not have the assurance of Thames’ own board, and it’s difficult for us to stand behind a plan that a board won’t stand behind,” he said at the time.
On Wednesday, Thames’ chair, Adrian Montague, attempted to hit back at suggestions of a board split. He said its latest plan “has the full backing of the board”. Meanwhile, Chris Weston, Thames’ chief executive, said its latest plan was “highly ambitious”.
Thames is already in a form of special measures under which it is subject to extra oversight by Ofwat, the aim being to get an accurate picture of its operational and financial challenges.
The company’s debts have ballooned in recent years to more than £15bn amid concern over the state of its assets, which serve more than 16 million customers in London and the Thames Valley.
The yield on some of Thames’ bonds rose on Wednesday following the latest exchange between the company and its regulator, reflecting the heightened risk to investors of holding its debts. The yield on a 2027 bond rose by more than one percentage point, from 15% prior to the statements, to 16.08%.
An Ofwat spokesperson said: “We have received responses from many organisations, including water companies, customers, environmental and consumer organisations, and investors. Inevitably, these reflect a diverse range of views on the proposals we have made.
“We will consider all of these responses carefully over the next three months and set out our final decisions on 19 December.”
