12/08/2013

Thames Water Asks To Increase Prices

Thames Water has submitted an application to adjust its prices for the current price control period, which runs from April 2010 to March 2015.

The organisation made the submission to industry regulator, Ofwat.

The request is in line with expectations, as set out in the firm's annual report and accounts for 2012/13, and with Ofwat's interim determination mechanism.

Thames Water has said the largest item of expenditure involved is £273m spent on acquiring land required for the construction of the Thames Tideway Tunnel.

If approved by Ofwat, the net impact would result in a single, one-off additional cost of about £29 per household in 2014/15, which is equivalent to almost £6 per year over the five year period.

However, the firm has recommended that the additional cost be spread over more than one year in order to avoid a large increase in bills for its customers.

Thames Water's average bill this year is £354, and after the adjustment, the bills would still be among the lowest in the country.

The application references six areas for adjustment. In two of those, Thames Water believes prices need to be lowered. The costs of dealing with sewer flooding have been lower than anticipated and revenue from sales of surplus land has been higher than predicted.

In the other four areas, the company is applying for an increase in prices. These are increases in bad debt as a result of the economic downturn, increases in Environment Agency charges, the costs of operating and maintaining the additional 40,000km of sewers that were transferred to Thames Water by the Government in October 2011, and the costs of land acquisition and other preparatory work required for the construction of the Thames Tideway Tunnel.

Stuart Siddall, Chief Financial Officer for Thames Water said: "Ofwat resets price limits for each water company every five years, most recently in 2009, based on the best information available at the time. Then, during the five year period, almost all changes to costs and revenues, whether upwards or downwards, are up to us to manage. These include the costs of dealing with severe weather, changes to financing, employment, energy and chemical costs, business rates and tax.

"However, at the beginning of a five year period there are always a small number of potentially significant costs and revenues that can be clearly identified but not quantified. These are set out at the time of the price review and either the company or Ofwat can seek an adjustment, upwards or downwards, once the actual costs and revenues are known. That is what we are doing now."

Mr Siddall added: "These significant costs could not be quantified at the beginning of the current pricing period, and their scale is unique to Thames Water's operations, project commitments and catchment area. Increasing prices is never good news, which is why the company and its shareholders are encouraging Ofwat to adapt its regulatory mechanism to allow the impact of the price increase to be spread over more than one year to avoid a spike in bills for our customers."

(JP/CD)

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