Thames Water made profits of £150m last year, and gave shareholders £92m - so why is it wanting to charge customers an extra £30?
Homeowners and businesses have been urged to use water "wisely" despite one of the wettest years on record in 2012.
Householders in the South are to be hit with the largest increase in water bills this year.
Video. Would you mind paying extra on your water bill for a project in London? Well, Thames Water wants to increase its charges by eight per cent for all households across Berkshire, Oxfordshire, Surrey and Wiltshire - in order to do just that. Juliette Fletcher reports.
Water regulator Ofwat have challenged Thames Water's plans to increase consumer bills.
The requested increase could add a further eight per cent and around £29 to an annual average household bill.
Ofwat is assessing Thames's application to determine whether increases are justified.
Ofwat is making counter-claims to Thames Water about their underspend on sewer flooding, a spillage in their sewage scheme and not adequately maintaining its wastewater network.
Ofwat’s Chief Regulation Officer Sonia Brown said:
“We have been clear that we would challenge Thames’ proposed bill increase. So we are looking to see if there are areas where we can claim money back for customers.”
Ofwat will examine whether there is a case for clawing back gains through this mechanism from Thames.
Plans for Thames Water to charge their customers a one-off surcharge of approximately £29 have been greeted with anger on social media site Twitter.
Surely risk of Thames Water's "unforeseen circumstances" belongs to its shareholders, not its customers? Cut dividends, don't hike bills!
Let's be clear, Thames Water. I pay my bill. others don't, so I have to pay again. And if I refuse to pay I am cut off. OK, perfectly fair.
Dear @thameswater , please hire someone like myself to go over your accounts, you can easily raise the money without raising your bills!
Thames Water have applied to water regulator Ofwat to charge customers a one-off surcharge on top of their bill of £29 pounds. The company said they have been forced to deal with "unquantifiable" costs that they were not aware of when Ofwat set price limits back in 2009. Increased costs include:
- Increases in bad debt as a result of the economic downturn
- Increases to Environment Agency charges
- The costs of operating and maintaining the additional 40,000 km of sewers that were transferred to Thames Water by the government in October 2011
- Costs of land acquisition and other preparatory work required for the construction of the Thames Tideway Tunnel
Thames Water has written to Ofwat, the industry regulator, to ask permission to charge customers an addition one-off fee of about £29 per household.
The money is to cover the costs they have spent on acquiring new land for the construction of the Thames Tideway Tunnel. In a statement, Thames Water said:
"Thames Water has submitted an application to Ofwat, its industry regulator, for an interim adjustment to prices for the current price control period, which runs from April 2010 to March 2015.
"The biggest item of expenditure involved is £273m spent on acquiring land required for the construction of the Thames Tideway Tunnel.
"If approved by Ofwat, the net impact would result in a single, one-off additional cost of about £29 per household in 2014/15, equivalent to nearly £6 per year over the five-year period. "
A spokesman for Thames Water said: " We have not paid much corporation tax in recent years because the Government's tax system allows us to delay, not avoid, payment of tax based on how much we invest".
"Because we are investing £1 billion a year from 2010 to 2015, more than any water firm in the UK's history, we are able to defer a lot of tax payments to future years".
"The HMRC tax mechanism is called the capital allowance. Its aim is to encourage firms like us to carry out early and extensive infrastructure investment".
"If capital allowances did not exist it would mean one of two things: customers' bills would be higher, or Thames Water would invest less. As things stand we invest record amounts while our customers' bills remain the second-lowest in the sector, at less than #1 a day."
The UK's biggest water company paid no corporation tax and received £5 million credit from the Treasury during a year in which revenues hit £1.8 billion.
Thames Water made £549 million in underlying pre-tax profits as it raised bills by 6.7%, while customer satisfaction dipped and hundreds saw their homes flooded by sewage.
The figures come in the wake of criticism by Jonson Cox, chairman of regulator Ofwat, that the high profits and tax-reducing corporate structures of some water companies were "morally questionable".
Thames Water's profit for the year to the end of March was a 9% fall on last year, blamed on the freezing weather and rising levels of bad debt during the economic downturn.
But chief executive Martin Baggs still received a pay rise to £450,000 plus a £274,000 bonus. Next month he is in line to collect a further £366,000 as part of a long-term incentive plan.
Thames says its taxable profits are reduced by allowances on its £1 billion-a-year investment programme. Remaining gains are offset by tax losses claimed from other parts of the company.
It also said the combined bill for business rates and employee income tax and national insurance and other taxes was £150 million, while spending with suppliers and contractors boosted the wider economy.
Thames Water has been fined more than £27,000 for causing the pollution of a river in Surrey
The incident saw a pipe burst in a field behind Walton Lane sewage pumping station in Weybridge and flooded the field with sewage, which then entered the Engine River.
The company admitted the offence at Staines Magistrates Court on Friday May, 24.
The company was fined £18,000, ordered to pay costs of £9,764.15 and a victim surcharge of £15.
Thames Water was advised by the Environment Agency to contain the spilt sewage with sandbags and removal of sludge from the top of the river.
However, the court heard how Thames Water did not make enough effort to contain the pollution and affecting over 1.2 kilometres of the river.
– Marie De Viell, Environment Agency Solicitor
Rivers and water courses are an important part of the environment; they offer an essential resource for wildlife, fisheries and recreation. It is distressing when incidents such as this one occur and cause fairly significant environmental damage, with several hundred fish killed by this sewage spill.
The prosecution and fining of Thames Water sends a clear message to other companies that if you fail in your environmental responsibilities you may be prosecuted.