Thames Water, the embattled London utility serving 16 million people in south-east England, has called for yet another increase in customer bills as it warns that proposed cuts to its business plan by the industry regulator, Ofwat, would jeopardise the company’s recovery. The UK’s largest water supplier is now seeking to raise customer bills by a staggering £18.99 a month, or 52 per cent, by 2030 to fund investments in wastewater treatment and other service improvements.
The utility had initially requested a 40 per cent increase in bills and a £22 billion investment by the end of the decade to address leaks and develop new water supplies. However, Ofwat rejected that plan last month, stating that Thames Water could only increase bills by 23 per cent over the five years covered by the business plan.
Chris Weston, chief executive of Thames Water, asserted that Ofwat’s response would render its business plan “neither financeable nor investible and therefore not deliverable,” thus hindering “the turnaround and recovery of the company.” Weston emphasised that the additional funds requested from customers would be invested in “new infrastructure and improving our services for the benefit of households and the environment.”
The chief executive also addressed concerns about the financial burden on customers, stating that they were “not being asked to pay twice, but to make up for years of focus on keeping bills low.” Thames Water revealed that it needs to raise approximately “£3.3 billion of new external equity, as well as substantial new debt” and is working with advisers at Rothschild to attract new equity investors.
The company has also proposed an increase to the “weighted average cost of capital” (WACC), arguing that “investors perceive the risk of investing in Thames Water as greater than the industry average.” Thames Water is now proposing a 4.6 per cent cost of financing, higher than the 4.25 per cent it forecast in an earlier business plan and the 3.72 per cent allowed return on capital proposed by Ofwat.
The group’s financial woes are compounded by its £18 billion debt pile, including borrowing at its parent company that has been in default since April. Last month, Thames Water lost its investment-grade credit ratings, putting it in breach of its licence conditions and pushing the group closer to renationalisation.
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