Ofwat has rejected Thames Water’s proposal for a 3% price increase between 2015 and 2020 - instead the water industry regulator has instructed the water company to cut customer bills by 5% in its Final Determination on Thames’ AMP6 Business Plan.
Thames Water had requested permission for a 3% rise in prices over the next 5 years - only four companies in total requested a price increase in AMP6. This was rejected by Ofwat who have instead instructed Thames Water to cut bills by 5%.
The actual average bill for Thames Water’s customers will now fall from £370 next year to £353 in 2019-20. The figures include the bill impact for all of Thames Water’s regulated activities, including the preparatory works it will undertake in respect of the Thames Tideway Tunnel, together with the impact arising from its activities in respect of the financing and construction of the TTT by a separate Infrastructure Provider (IP).
However, Ofwat has not determined the IP’s revenues at this price review. Instead, the IP’s revenues (particularly during the construction phase) will be calculated by reference to the terms of its licence and by reference to the outcome of the competitive procurement process currently being undertaken by Thames Water. The assumptions made for the bill impact of the IP are those stated by Thames Water in its business plan. The impact of the final determination means that average bills in 2019-20 will be £336 (excluding the projected impact of the Infrastructure Provider (IP)), which is 4.1% lower than current average bill levels. Including Thames Water’s projected bill increase in respect of the IP, bills in 2019-20 would be £362, which is 3.3% higher than current average bill levels. This is lower than the projected bill increase of 10% in Thames Water’s December 2013 business plan.
Ofwat did not accept Thames Water’s new claim for additional bad debt costs of £93.2m in respect of the transient nature of its customers. It also turned down the water company’s proposal to use the PAYG ratio to advance revenues from 2020-25 on the grounds that it had “not provided convincing evidence of the benefits to customers of the proposed bill profile.”
Responding to Ofwat’s final determination on water bills today, London Assembly Labour Group Environment Spokesperson, Murad Qureshi AM said:
"Ofwat's decision that there should be a cut to Londoners' water bills is hugely welcome. For the many Londoners struggling to cope with years of stagnating wages and rising living costs today's announcement will be a great relief.
"Thames Water was one of the only water companies in the country to propose price rises. Whilst the new Thames Tideway Tunnel is important, Ofwat have rightly recognised that the project cannot be funded by squeezing yet more out of Londoners' pockets.”
"Whilst Ofwat's £17 cut to bills is encouraging, water companies are still allowed to increase their overall prices with inflation. That will mean people could quickly end up paying more."
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