The water companies of England and Wales propose a sharp increase in household bills in order to pay for record investments in the water and sewerage network.
By the end of this decade, bills would increase on average by £156 per household. The plans cover the period 2025- 2030, and are a near double of the £51bn spent in the previous 5-year period.
Ofwat, which is the regulator for water companies, decides what they can charge their customers to maintain and upgrade infrastructure.
Ofwat will have to find a balance between public outrage over sewage spills and price hikes during the cost of living crisis, while also balancing calls for investment.
The government must also reassure investors in water companies that the regulatory system is stable enough for them to continue to finance these companies. Many of them are suffering from balance sheets laden with debt, and they ask for equity from their shareholders.
David Henderson, Chief executive of Water UK (the industry trade group), said: “Although increasing bills are never welcomed, they’re not welcome either.” . . Approving the plans is essential to ensure that we are able to provide high-quality drinking waters for an ever-growing population, as well as ensuring the security of the water supply into the future. We also want as little storm water as possible.
There are several proposals, including £11bn to reduce overflow spills and pipes for water transfer between the wetter north and south. Ofwat will review the plans and make a decision within a year.
The average bill is currently £448 but varies by region. It is adjusted annually for inflation. Severn Trent (which covers the Midlands, Wales and parts of England) has already stated that it wants to increase bills by 38%, or about £139 per household by 2030. Southern Water is expected to announce a much larger increase on Monday. The company was criticized for dumping raw sewage near popular beaches in the summer.
David Black, Ofwat’s chief executive, tried to calm consumer anger by assuring them that they “would only pay for future investments, not to fix past failures”.
He added that “as families struggle to pay higher household bills, it is important for the needed improvements in performance and investments to offer value for money.”
He said that the regulator will hold companies accountable by encouraging delivery and imposing penalties for those who fail.
Therese coffey, environment minister, said that she had been clear in telling Ofwat (the regulator) that consumers should not be penalized for poor performance, and they should make full use of the powers given to them by the government on behalf.
There are growing concerns that punitive language from the government and regulator, as well as hefty fines, will discourage investors. Companies are now burdened by £60bn in debt, up from £0 at privatisation. Although equity injections were rare after privatisation many companies have asked shareholders for cash.
Dominic Nash, Barclays Research analyst, said that investment in the water industry should not be assumed. Recent Ofwat/Defra announcements may have increased the risk for investors, and this could result in less investment.
In 2020, Four water companies will have their appeals accepted by the Competition and Markets Authority. Ofwat had rejected some of their original plans. The regulator was worried that companies would make investments at a lower cost, and then divert the excess money to their shareholders, private equity funds, pensions, or sovereign wealth funds. Many experts predict that the appeals process will be repeated next year.
Feargal Sharkey is a water activist who said, “The question that we must ask ourselves is: What happened to our money?” Where is it? “If they had spent the money on sewage treatment and building some reservoirs, they wouldn’t now be asking for such large increases.”