Water industry regulator Ofwat has said that an increase in bills for customers is inevitable following the transfer of private sewers to water and sewerage companies in England and Wales.

The comments come in Ofwat’s response to Defra’s consultation paper setting out draft Regulations and proposals to implement the transfer of private sewers and lateral drains connected to the public sewerage system into the ownership of the water and sewerage companies.

Ofwat’s primary concern is for the transfer to be implemented in a way that minimises costs to both companies and their customers. The regulator wants investment paced so that the increases in bills that will “inevitably follow such a significant increase” in company-owned assets occur at an affordable rate.

Ofwat said that the continuing level of uncertainty surrounding costs of transfer and associated bill impacts meant it would be prudent for the scheme for transfer to include flexibility as to the pace at which the transfer takes place and the timing of expenditure.

High likelihood of price increase before 2014

The regulator’s own analysis indicates a high likelihood that the transfer will trigger applications by companies for interim determinations and a consequent re-setting of prices at some point before 2014.

In Ofwat’s view it will be important to defer expenditure that can reasonably be deferred from AMP5 to AMP6 - with amendment of the draft regulations to extend the deadline for the transfer of pumping stations beyond 1 October 2016 as the key measure.

Ofwat said there were compelling reasons to defer the transfer of private sewers and lateral drains upstream of a private pumping station until the time at which the pumping station itself was adopted. Ofwat has suggested a revised date of 31 March 2020 would permit necessary upgrade work on these assets to be carried out over a longer period and reduce the costs incurred in the current AMP5 period.

Defra's own Impact Assessment recognises that continuing uncertainty over the extent and, particularly, the condition of private sewers has meant that to date the water companies have been unable to provide Ofwat with full and accurate data needed to calculate required levels of funding in future price determinations.

Huge uncertainty over figures

Ofwat said that the current lack of intelligence about the number of pumping stations which will be subject to transfer exemplified the problem. The consultation paper cites industry estimates that "indicate that there might be up to 33,000 sewage pumping stations eligible for transfer". However, the estimated costs in the accompanying Impact Assessment are based on a smaller total of around 22,000.

The regulator said it has recently learned of much higher estimates, one (of 48,000) produced by a pump maintenance company, one (of 66,000) from independent market research.

WaterBriefing flagged up the strong likelihood of price increases before 2015 back in April with the start of AMP5.