By Sarah Young and Paul Sandle
LONDON (Reuters) -Water bills in England and Wales are set to rise by just over a third in the next five years to help tackle sewage spills, after the regulator said it would allow a bigger increase than it previously flagged – though still less than companies wanted.
The average increase of 36% before inflation for companies including ailing Thames Water – equivalent to 31 pounds ($39) a year over five years – compares to the 44% average requested by companies and the 21% regulator Ofwat proposed in July.
The pumping of raw sewage into rivers and seas has become a scandal in Britain, with privatised water companies accused of prioritising dividends and management bonuses over investment, leaving infrastructure to degrade.
Ofwat said it had given the companies an opportunity to regain customers’ trust and improve their environmental record by investing 104 billion pounds ($131 billion) in upgrading reservoirs, storm overflows and pipes.
“We can see clearly how public confidence has been damaged by issues such as sewage spills,” Ofwat Chief Executive David Black told reporters on Thursday.
“The need for change is recognised by ourselves, as well as government, companies, environmental groups and other regulators.”
Shares in listed water companies rose in reaction to what Barclays described as a positive development. Severn Trent was up 1.8%, Pennon was 3.1% higher while United Utilities was up 1%.
Thames Water, which is on the brink of collapse and needs to secure new funding to survive beyond March, will be able to increase bills by 35% a year, Ofwat said. It had wanted 53%.
It will be allowed an extra 11 pounds on average in 2029-30 once Ofwat has clarity over its plan.
Thames said it would “take time to review the determination in detail before making its response”, while another operator, Pennon, said it was reviewing the implications.
Black said Thames needed to improve its performance and its financial resilience, adding that its proposal had been treated on its merits, the same as the others.
He said the ruling “offered a reasonable rate of return for investors if the company performs in an effective manner”.
None of the companies will be allowed to raise bills as much as they had wanted. Southern Water which had demanded the highest increase, at 83%, will increase bills by 53%.
They have until Feb. 18 to appeal Ofwat’s decision.
HELD TO ACCOUNT
The regulator said it would hold companies to account for improving services and investing in infrastructure.
Showing its tough approach, Ofwat used new powers to fine Thames 18 million pounds for paying dividends to its parent company in 2023 and 2024 that were not linked to performance.
The sector has blamed the regulator for wanting to keep bills low, and the industry, saddled with tens of billions of pounds of debt, is now under pressure to fund an overhaul of pipes and treatment plants.
Environmental groups, however, have questioned whether the companies can be trusted to invest to stop sewage spills after repeated failures.
($1 = 0.7915 pounds)
(Reporting by Sarah Young. Editing by Kate Holton, Tomasz Janowski and Mark Potter)
