October 24, 2013 4:38 pm

Thames Water to press on with claim for extra 8% rise on bills

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Thames Water is to continue its fight to levy an additional inflation-busting price rise on the bills of its 14m customers next year.

Last week the industry regulator, Ofwat, rejected a proposal by Britain’s biggest water and sewerage service provider to impose an extra 8 per cent increase, saying the utility was not doing enough to control costs or chase delinquent customers.

However, the ruling left the door open for Thames Water to appeal ahead of a final decision in November.

Thames Water confirmed on Wednesday it was continuing with its challenge.

“We have submitted further evidence supporting our application . . . for a temporary adjustment to prices in 2014-15,” said the company. “We await Ofwat’s final decision.”

Ofwat said it did not believe Thames Water’s initial evidence justified an increase in bills. “We will consider all the new evidence we have received, and make a final decision on whether any increase is justified in early November,” it said.

Thames Water’s bills are already scheduled to rise 1.4 per cent on top of inflation next April under the terms of a five-year pricing agreement. The water company wants to add a further £29 to average bills that stand at £354 a year.

Thames Water is the only company among 19 providers across England and Wales regulated by Ofwat to have applied for an extra increase on top of the pricing agreement running to 2015. It launched its application in August.

It says the increase is needed to cover the growing cost of bad customer debts and preparations for the construction of the £4.1bn tideway tunnel, or “super sewer”, to prevent overflows into the Thames.

It also has pointed to the cost of additional repairs to private sewer networks agreed with Ofwat.

The Consumer Council for Water backed Ofwat’s decision to reject the claim saying “other water companies have absorbed many of the same costs”.

Thames Water’s decision to pursue its case technically leaves the door open for Ofwat to demand a fall in prices under the five-year plan.

In its draft determination issued last week, Ofwat stated that it was looking at whether Thames Water benefiting “from wider economic circumstances beyond its control, and whether we can share these gains with consumers through . . . the ‘substantial favourable effect’ mechanism”.

It said the process was proceeding in parallel with Thames Water’s pursuit of the additional price increase.

One of Ofwat’s criticisms was that the company had overstated the impact of recession on its revenues. It suggested this should have cost Thames Water £13m rather than the £75m the company claimed. It was also highlighted the company’s failure to pursue bad debtors as vigorously as other utilities.

“Thames Water has overestimated the increase in bad debt write off over the period, and we do not think the company is achieving best practice in debt management,” it said.

A paper published by Bloomberg New Energy Finance has also cast doubt on the need for an eventual £80 annual increase in Thames bills to finance the construction of the “super sewer”.

It argued the rise could correspond to a 24 per cent post-tax return on equity invested in the project, more than three times the average return in UK water assets.

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