Thames Water price rise plan could be reversed

A decision could be made in early November. Credit: Lukas Schulze/DPA/Press Association Images

Planned price hikes by Thames Water could be reversed after the industry regulator attacked the company's performance and its demand for extra money.

Thames Water wants permission for a one-off bill increase of up to 8% in 2014/15 - equivalent to £29 - because more customers are struggling to pay their bills and it is having to fund a super sewer under London.

But Ofwat today turned the tables on the company, saying it is exploring whether it has benefited from ultra-low cost of borrowing for big corporations, and if it can claw back money for its 14 million customers.

Ofwat launched counter-claims against Thames Water as it believes it has made "substantial savings" by doing less than expected to tackle sewer flooding.

A major investment programme in sewage treatment has also dragged on too long, it said, despite customers being charged for the improvements.

And it said some of Thames Water's sewerage network is not hitting performance targets.

Ofwat 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."

The current average Thames Water household bill is around £354 a year.

Ofwat also launched a separate probe into whether the company, owned by Australia's Macquarie Group, has "benefited from wider economic circumstances beyond its control".

The probe is believed to centre on whether Thames Water has gained from the ultra-low interest rate environment, reducing the cost of servicing its huge debt pile.

It could deduct gains from Thames Water through a process called the "favourable effect mechanism" - although Ofwat said it is too soon to say whether this may result in lower bills for customers.

Thames Water sparked anger when it revealed the planned bill increase last month. It came just months after it emerged that the firm, whose revenues rose to #1.8 billion in the last financial year, paid no corporation tax.

It hopes to apply the price rise to next year, but has asked if it can spread out the charge over more than one year to avoid a spike in bills.

Thames Water is subject to a five-year price control period that runs out in 2015 but said it needs to ask customers for more to cover costs that could not be quantified at the time this was set in 2009.

It cited £273 million spent acquiring land for the Thames Tideway Tunnel, a major new sewer development.

And it said £16 of the extra £29 was accounted for by increases in bad debt - when customers failed to pay their bills - blamed on the economic downturn.

A Thames Water spokesman said: "We expected the regulator to set out the format for assessing our application. This is part of the regulatory process. We don't plan to comment until after Ofwat's draft decision, expected in mid-October."

Underlying pre-tax profits at Thames Water fell 20% to £144.9 million in the year to the end of March.

Thames Water is owned by Kemble Water Holdings, whose main investors are ultimately controlled by Macquarie.

Much of Thames Water's income was spent on servicing huge debts, with interest payments of over £400 million over the year as borrowings increased from £7.8 billion to £8.4 billion.

A decision could be made in early November.