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Ofwat lowers industry price limits, but says Tideway Tunnels will go ahead

Water and sewage companies must charge customers less over the next five years, according to Ofwat’s draft proposals for water prices published today.

The average household water and sewerage bill will decrease by around 4% by 2015, shrinking to £330 – a £14 reduction (before inflation).

This is lower than the prices proposed in the business plans of all the UK and Wales water companies. If Ofwat had agreed to all of the proposals, the average bill would have been £375.

But Ofwat said investment will not suffer, with almost £21bn to be invested over the five year period. £12.1bn of this will go towards maintaining and replacing assets, and £0.9bn will be invested to deliver major projects. £0.9bn will improve service levels, including pressure problems and sewer flooding.

A balanced outcome

Ofwat Chief Executive Officer Regina Finn called the draft figures a “balanced outcome”. “We believe it is fair both to customers and companies,” she said.

Finn said that Thames Water’s Tideway Tunnels project would not be affected by the lowered price limits, and would be able to go ahead as planned.

It was also noted that the bulk of the Tideway Tunnels spend would take place in the next five-year period – from 2015 onwards – so the price limits published today have limited significance for the project. The build is proposed to happen between 2012 and 2020.

“We believe it is fair both to customers and companies.”

Regina Finn, Ofwat

However, Thames Water Chief Executive David Owens was disappointed by the figures. “Today’s draft determination may not allow us to deliver what our customers want in the future.

“For example, this means we won’t be able to reduce leakage at all over the next five years,” he said.

Presenting the draft figures, Finn said the water industry must “think innovatively” to solve the problems facing it.

“The challenges of the future are different from the challenges of the past,” she said, and cited climate change, population growth, the need for resilient infrastructure and the rise in single households using more water.

New challenges

Finn also said we “need to guard against” disasters such as the 2007 floods. “That is not really acceptable,” she said. “There is enough investment in this determination to protect 10M people against this sort of thing.”

Other areas of investment outlined by Ofwat included leakage – which has already reduced by almost a third since the mid-1990s – and metering to reduce water wastage. Household metering will increase to 49% by 2015, and will be higher in “areas of scarcity”. Southern Water will roll out metering to 93% of homes in such areas.

“Our bills are unsustainably low. Bills must rise to fund much-needed upgrades.”

David Owens, Thames Water

However, Owens insisted that Thames Water prices still need to rise. “Our bills are unsustainably low,” he said. “Bills must rise to fund much-needed upgrades to our crumbling Victorian pipes and sewers.”

Owens cited leakage reduction and the prevention of sewer flooding in people’s homes as two areas which had seen significant cuts, and said: “We’ll be working with the regulator to achieve the best result for our customers at the final determination.”

Finn agreed that sewer flooding is a “very important issue”, and said things could change before the final figures are released in November. “If there is new information we will take it into account. New information could make this go either way,” she said.

“But on the information we have, we think this [draft determination] is pretty solid.”

Ofwat sets limits on the prices English and Welsh water and sewerage companies can charge every five years. The draft figures published today will be followed by final determinations of price limits in November this year.

Companies submitted draft business plans in August last year, and final business plans in April this year, to outline the prices they believed they would need to charge.

The new water bills will come into effect in April 2010.

The worst-hit companies by average bill

Water and sewerage companies

CompanyBusiness plansDraft DeterminationDifference (%)

1.

Thames Water

356304

-15

2.

Hartlepool

145125

-14

3. =

Severn Trent

318281

-12

3. =

Southern

426373

-12

Water only companies

CompanyBusiness plansDraft DeterminationDifference (%)

1.

Sutton & East Surrey

210152

-27

2.

Bristol

202151

-25

3.

Portsmouth

10580

-24

Readers' comments (1)

  • I am really disappointed to read that in a climate where water resource availability is becoming increasingly scarce, ofwat still do not seem to recognise this increasing pressure on our natural resources and the need to protect it. The consuming public need to recognise that the current level of water abstraction and consumption in this country is not sustanaible particularly in the south east of England,where there is an ever increasing population and concentration of urbanisation. This is particularly evident following Thames Waters proposals to build a desalination plant in response to meeting these demands and also having to protect current water resources from overabstraction. Some of our largest aquifers are already under considerable stress affecting water levels and dependant ecosystems in our rivers.
    In order to meet future demands in terms of water supply, water companies are having to propose and will have to take some major steps within the next 25 years to making their assets and systems more efficient, which will require a significant amount of investment especially in areas where the system is antiquated and deficient.

    But the responsibility of our water resources shouldn't be solely placed on the water companies and the Environment Agency. Developers are being begrudglingly educated and made aware of the UKs water resource issues through requirements and pressures from the local authorities and Environment Agency as part of the planning process. Developers are increasingly being encouraged to build more sustainable and water efficient homes but there still seems to be a large aversion to installing grey water recycling systems due to public perception.

    It seems that Jo public is as usual getting away scot free with the concerns of the environment and the problems faced by the water industry. So long as household water bills are kept low there is no incentive for the public to use water conservatively or to value this commodity. And it concerns me that ofwat fail to recognise this and the pressures on water companies to meet these future pressures, particularly in the face of climate change.

    Regina Finn will ask us to 'think innovatively' to keep costs down, but where does the funding for research and development come from?

    I think ofwat need to justify why they think such an increasingly rare commodity should come at an increasingly cheaper price.

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