UK water companies must improve without big bill rises, regulator says

London — British regulator Ofwat told water companies on Thursday that they must make environmental upgrades without raising bills as much as they had wanted amid a funding crisis and public anger over the level of pollution in rivers and the sea.

The trade-off between price hikes, private investment and cleaner rivers is a test for the new Labour government, as the biggest supplier Thames Water teeters on the brink of financial collapse.

Over the next five years, Ofwat said it would allow companies to increase average bills by 21%, or £94 ($121), and that they should spend £88bn on upgrading infrastructure to clean up rivers.

The companies had wanted to increase bills by an average of 33%, and invest £105bn to upgrade ageing pipes and accommodate a growing UK population.

There has been a public outcry about sewage discharges into rivers and the sea, with critics saying the companies have underinvested for decades while taking out billions of pounds in dividends and paying large bonuses to executives.

‘MINIMUM ASK ON CUSTOMERS’

Ofwat CEO David Black told Times Radio: “We do need to see real action, sustained improvements on sewage discharges, but it does need to be done in a way that puts the minimum ask on customers that's possible.”

Industry body Water UK slammed Ofwat’s proposals, accusing the regulator of prolonging a crisis which has meant crumbling pipes and more frequent sewage spills.

“For far too long, Ofwat has failed to be realistic about the levels of investment needed and what it will take to deliver and maintain necessary infrastructure,” a spokesperson said.

Thames Water, at the forefront of public debate about a water industry which was privatised in 1989, wanted to hike bills by a total of £191 over five years, but Ofwat said it would allow a rise of £99.

Struggling under £15bn pounds of debt, Thames said on Tuesday it would run out of money next year if it did not raise £3.25bn of equity and that it needs the bill rises to ensure sufficient returns to attract investors.

GOVERNMENT REFORM

Environment minister Steve Reed, appointed after Britain’s July 4 parliamentary election, said tighter regulation was needed. He told Ofwat to ensure funding for infrastructure investment was ring-fenced and not spent on bonuses or dividends.

“Today I have announced significant steps to clean up the water industry to cut sewage pollution, protect customers and attract investment to upgrade its crumbling infrastructure,” Reed said on Thursday.

He said the government would outline further steps in the next months to reform the water sector and restore British “rivers, lakes and seas to good health”.

It is a balancing act to clean up Britain’s bodies of water, avoid soaring bills and keep investors onside.

New Prime Minister Keir Starmer wants to boost private investment into infrastructure, and investors will be looking at water as a test case.

Ofwat set the allowed rate of return paid to investors of water companies at 3.72%.

Under the regulator’s proposals, Black told BBC radio Thames Water would be able to attract investment and “it’s now their job to go to investors and to seek to raise that funding”.

Hours before Ofwat’s announcement, credit rating firm S&P Global warned it could downgrade Thames’ class A and B debt to “junk” ratings, making them uninvestible for big pension funds.

Ofwat is due to publish its final decision on future bills and investment on December 19. The companies can refer their case to Britain’s Competition and Markets Authority if they cannot reach agreement with Ofwat.

Reuters