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Water bills set to rise!

March 10, 2007 at 4:05 am

The Water Services Regulation Authority (Ofwat) is the economic regulator of the water and sewerage industry in England and Wales. “Our role is to seek value for consumers” the Ofwat website states boldly, placing itself firmly in the role of mediator between water companies and their customers. Ofwat functions in various capacities: regulating prices, improving water and sewerage services and seeking to encourage healthy competition between providers. So far so good. However, the announcement on the 1st March that average domestic bills will rise again this year by more than twice the inflation rate, coupled with last years comparable double-digit rise, has many critics talking.

As a collective, water companies made an estimated £3bn last year, but consumer groups have argued that promised improvements in services and infrastructure have seen little of this massive profit. The rate of return which water companies could make was set by Ofwat at 5.1pc as part of their five-yearly review for 2004-2009, a figure much higher than many other regulated sectors. As a direct result of this, shares in water companies rose considerably, with investors viewing the industry as a stable and low-risk option for the following few years. However critics have pointed out that the massive profits thus incurred were not spent where they were most needed. An official at the Consumer Council for water is quoted as admitting “The water companies are demonstrably not doing what they should be doing, in that they have invested a lot less in the infrastructure than Ofwat actually allowed. They haven’t actually been doing what they should have done in return for the money that customers have provided.” In short, the customers are paying more, the water companies are making more, but service and standards have seen little improvement.

Between 2005 and 2006 water companies were expected to invest £4.3bn under the Ofwat settlement, but in fact the figure was closer to £3.4bn. While some investment delay was legitimate and unavoidable (Thames Water’s spending included finance for new plant at Beckton, for which planning permission was delayed) in other cases Ofwat was obliged to force Thames to complete extra work in order to meet leakage repair targets, while Severn Trent and southern were fined for failures in customer service standards. With prices rising year on year and little significant improvement of service or standards, customers may naturally question the legitimacy of their rising water bills.

Colin Skellett, chairman of Wessex Water, is however adamant that recent rises in price are legitimate and necessary. “The sole reason for the price increase is to pay for the investment programmes” he explained “As long as there are these large investment programmes, particularly the requirements coming out of Europe for higher and higher [environmental] standards, bills will continue to rise.” All the evidence suggests that customers shouldn’t expect the price of water to plateau, much less fall in the future, with the latest rise in bills set to indicate a trend for the coming years.

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