05.02.10 Thames Water backs out of Ofwat confrontation

Thames Water, the biggest water company in the UK, has agreed to a settlement from Ofwat to which it had put up strong resistance over the last few months. It involves the amount by which it is able to increase customer bills over the next five years.

Initially, Thames Water was asking to be allowed to raise bills by 17% before inflation from the period between 2010 and 2015. Ofwat rejected this, stating that it would have to freeze the bills over this period.

This was unacceptable for Thames Water, and a period of lobbying followed where it attempted to get the limit increased. Finally, Ofwat relented slightly in November, but still limited the bill increases to 3%, much lower than Thames Water had hoped for.

Thames Water then had to decide whether to take its case to the Competition Commission to try and get the limits increased further. However, the recent announcement confirms that it will not be taking this measure and will accept the 3% rise in bills.

Thames Water serves 8.5 million customers in London and the Thames Valley. It is keen to improve its network over the next five years, including making huge improvements to the ancient and broken pipes, and it is planning to spend about £5 billion on this, even though it had originally planned £5.5 billion.

Other works that it is planning are the construction of a tunnel which will reduce the overflow from the sewerage system and lead to lower levels of pollution in the Thames. It is also planning to make improvements to five sewage works in London, and wants to install 370,000 water meters in its customers’ homes.

Although Thames Water will not be contesting the limits, Bristol Water has not accepted Ofwat’s decision and has appealed to the Competition Commission. It wants a big hike in prices but has been limited to 7%.

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