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The water regulator, Ofwat, may block a proposed £29 surcharge on bills for thousands of customers in Gloucestershire and Wiltshire.
Thames Water wants to impose the levy next year - on top of its annual price increase, to pay for a new sewer in London and to cover the cost of bad debt.
Ofwat is now challenging the need for the increase, a move welcomed by the consumer watchdog.
Sir Tony Redmond from the Consumer Council for Water said he was encouraged the regulator had taken this decision:
Thames Water wants to increase prices for customers in the West to help pay for a new super sewer in London.
The company, which supplies water to parts of Wiltshire and Gloucestershire, has applied to regulator Ofwat to add an extra £29 onto every household's bill. Thames Water says the company is facing a tough time financially even though its revenues rose to £1.8 billion in the last financial year.