Water services price drop in England/Wales: industry reaction

Water industry regulator Ofwat has ruled that household bills in England and Wales for drinking water and wastewater services will fall by 5% by 2020...

Water industry regulator Ofwat has ruled that household bills in England and Wales for drinking water and wastewater services will fall by 5% by 2020.

This could see a saving of £20 in average bills, from £396 to £376.

Following two years of discussion, Ofwat has set out the levels for which all 18 water and sewerage companies can set their prices for the five-year period, beginning in April 2015.

In a statement, Ofwat estimated that utilities are set to spend more than £44 billion or around £2000 for every household in England and Wales over the next five years.

New charges will come into effect in April 2015. Companies have two months in which to accept Ofwat’s final determination, or seek a referral to the Competition and Markets Authority (CMA).

Cathryn Ross, chief executive of Ofwat said: “Now the hard work begins. Companies will only build trust and confidence with their customers if they deliver. Those who do can look forward to fair returns, while those that don’t will be hit in the pocket and face a tough five years ahead.”

At the end of November the Labour Party announced it would introduce plans to strengthen Ofwat with affordability issues, should it win the next general election in May (see WWi story).

Reaction

Tony Smith, chief executive of the Consumer Council for Water (CCWater), said:“Most water companies and the regulator have listened to customers and delivered a deal which reflects the services they want, at a price most find acceptable…But customers need to be aware that water companies are allowed to add inflation to bills each year which means charges are still likely to rise from what they are now. That will hurt some households.”

Peter Simpson, Anglian Water’s chief executive, said: “…It’s definitely good news for our customers. It means we can meet the promises we made to customers during our largest ever public consultation. Our average bills will fall by 10% next year – the biggest of all the water and wastewater companies. And bills will then stay flat, before inflation, for the following four years to 2020. We’ve been able to agree this reduction because we’ve become an increasingly efficient company. We are passing these savings on to our customers in the form of lower bills – and this is consistent with the promises we’ve been making all along.”

Murad Qureshi, London Assembly Labour Group Environment Spokesperson, said: "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….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.”

Dr Matt Firla-Cuchra, power and utilities partner at KPMG, said:“We have seen Ofwat blow hot and cold with water companies today: they allowed water companies to pass on almost all their costs to customers, but also slashed the amount of profit allowed…Ofwat significantly reduced allowed returns to make consumers benefit from the cheap financing currently available in capital markets. This means that the cost to consumers of servicing approximately £60bn of private capital employed in the industry will be over 25% lower than in the past.”

Neil Griffiths-Lambeth, associate managing director of EMEA Project and infrastructure finance at Moody’s, said:“Moody’s views United Utilities Water and Thames Water Utilities as the relative winners following Ofwat’s announcement of final price limits for the next five years…We expect the sector to maintain adequate financial flexibility following the cut in allowed returns by reducing dividends or leverage as necessary. Water companies may also be able to improve their cash flow through operational or financial outperformance.”

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