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Oct 26, 2024

Water firms warn that plans to cap bills will harm efforts to stop sewage leaks - Mirror Online

Water bills could be capped in a way that could pose a "material risk" to suppliers' ability to finance essential infrastructure improvements, which includes tackling sewage leaks, industry leaders

Water bills could be capped in a way that could pose a "material risk" to suppliers' ability to finance essential infrastructure improvements, which includes tackling sewage leaks, industry leaders have cautioned.

The water sector's trade body, Water UK, has voiced concerns that Ofwat's draft proposal to keep the rise in household water bills to an average of just £19 a year will seriously impede companies' capabilities to enhance their services. A letter sent to Ofwat's chief exec David Black on Wednesday by Water UK notably highlighted the fear that such a cap could deter crucial investment, which is needed for a major funding initiative aimed at upgrading Britains water systems.

Pointing to potential financial shortfalls, Water UK's chief David Henderson remarked: "Ofwat's approach would make it impossible for the water sector to attract the level of investment that it needs and will reduce the UK's attractiveness to international investment."

This caution coincides with the deadline day for industry responses to Ofwat's initial suggestions, which will shape the water sector's billing increments, spending strategies, and investor returns through to 2030. In its draft decision revealed in July, Ofwat suggested that water businesses should only get permission for bill rises that are a third less than their initial requests.

According to submitted plans by water providers, there would have been an average billing increase of £144 over the next five years although changes in price were expected to vary among different suppliers. Ofwat's latest announcement to curb the average bill increase to 21%, approximately £19 annually, follows water companies' proposals to bump their total outlay by a £29billion.

This includes a £5billion surge in core operational costs and £24billion earmarked for government-mandated upgrades and eco-friendly enhancements. The watchdog highlighted its review of companies' spending plans to promote efficiency led to slashing £16billion off the proposed spendings.

But there has been mounting public and political fury around firms’ polluting of waterways with sewage spills as they continue to hand dividends to shareholders, and bonuses to executives – something which Labour has pledged to clamp down on.

Sewage spills into England’s rivers and seas more than doubled in 2023. According to the Environment Agency, there were 3.6 million hours of spills last year – equal to about 400 years – compared with 1.75 million hours in 2022.

However, a Water UK-commissioned report by consultancy Oxera, which is being published on Wednesday, warns over the impact on the sector of the Ofwat plans. It said: “Ofwat’s draft determinations would likely result in significant investability issues for the sector as a whole. In particular, there is a material risk that the sector is unable to raise the new equity investment required to finance the proposed investment programme.”

The report added: “This would hamper the sector’s ability to deliver the environmental and service improvements expected of the sector by its consumers and other stakeholders, and would not be in the public interest.”

In a further shot across the bow, a group representing water investors such as pension funds also cautioned over Ofwat’s draft plans. Jon Phillips, head of the Global Infrastructure Investor Association, criticised the regulator's approach, stating: "For too long, the regulator has prioritised low bills at the expense of investing in the resilience of the sector. The solution to this vicious circle sits with Ofwat the regulator can't continue to penalise water companies for not meeting expectations without equipping them with means to provide the solution."

These cautionary statements emerge just weeks after Ofwat announced proposed fines totalling £168million against three of England's largest water companies for their failure to properly handle sewage spills. This includes a £104million fine for the embattled Thames Water.

Additionally, Yorkshire Water faces a planned £47million penalty and Northumbrian Water £17million, following what Ofwat described as a "catalogue of failure" by these companies, in the initial findings from its most extensive investigation into the water industry to date.

Ofwat has indicated that it will take all feedback "carefully" into account before making its final decision on the water companies' financial plans by December 19. A spokesperson for Ofwat commented: "We expect to receive responses from many organisations, including water companies, customers, environmental and consumer organisations and investors. These are likely to reflect a diverse range of views on the proposals we have made."

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