Regulators have said they will impose a “turnaround oversight regime” on Thames Water and opposed the utility firm’s planned 44% rise in consumer bills over the next five years.
In a draft verdict on England and Wales’ water company business plans to 2030, Ofwat instead proposed Thames increase average yearly bills by 23% to £535 over the period.
The heavily indebted Thames, which has 16 million customers across London and the Thames Valley, will have to “fully re-evaluate” its current turnaround strategy under Ofwat’s measures.
It will be made to publish a separate “financial resilience plan”, while Ofwat is also considering appointing a so-called independent monitor to report on the company’s progress.
The independent monitor would have “full access” to the company’s financial information, Ofwat said.
Thames will also have to provide a “delivery action plan”, outlining how it intends to improve its performance on sewage spills and leakage, which has been among the worst in the industry in recent years.
The watchdog also reduced Thames’ planned investment in its services, including upgrading its ageing infrastructure, to £16.9 billion, down from the £21.4 billion the company had proposed.
Thames is in the grips of a funding crisis and has more than £15 billion of debt. It said this week that it only has enough money to continue trading until the end of May 2025.
Bosses are scrambling to secure a major cash injection to keep it afloat, and have held talks with both existing shareholders and outside investors.
But chief executive Chris Weston said on Tuesday that the investment is “dependent on (Thames) securing a final regulatory determination that is … investable”.
If Thames does not succeed in getting the funding, it faces the prospect of being temporarily nationalised by the Government and being placed in a form of special administration, meaning the taxpayer would take on the costs of the heavily loss-making water giant.
Ofwat’s ruling on Thursday is a draft decision and kicks off a lengthy period of negotiation until its final verdict in December.
However, the regulator has rarely made major deviations between its draft and final rulings in previous years, meaning Thursday’s statement gives companies an indication of how lenient it is likely to be later on.
It comes as household water bills in England and Wales are to rise by an average £19 a year over the next five years – a third less than the increase requested by companies, under the draft proposals.
Environment Secretary Steve Reed will be meeting representatives from all 16 water companies from across England and Wales on Thursday following the Ofwat publication.
A source close to Mr Reed said yesterday: “The last Conservative government weakened regulation, allowing the sewage system to crumble and illegal sewage dumping to hit record levels.
“The election of this Labour Government is a reset moment for the water industry.
“In coming weeks and months, the Government will outline its first steps to reform the water sector to attract the investment we need to upgrade our infrastructure and restore our rivers, lakes and seas to good health.”
Ofwat chief executive David Black said: “Customers want to see radical change in the way water companies care for the environment.
“Our draft decisions on company plans approve a tripling of investment to make sustained improvement to customer service and the environment at a fair price for customers.
“These proposals aim to deliver a 44% reduction in spills from storm overflows compared to levels in 2021. We expect all companies to embrace innovation and go further and faster to reduce spills wherever possible.
“Today’s announcement also increases the resilience of our water supplies to the impact of climate change and will reduce how much water is taken from rivers by enabling a range of long-term water supply projects, which includes plans for 9 reservoirs.
“Let me be very clear to water companies – we will be closely scrutinising the delivery of their plans and will hold them to account to deliver real improvements to the environment and for customers and on their investment programmes.”
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