Bill Cap Will Restrict Infrastructure Upgrades, Water UK Warns
In July, water industry regulator Ofwat unveiled a proposed investment programme by water suppliers of £88 billion to reduce storm overflow spills, key infrastructure upgrades, protect the environment, improve customer service and make the nation’s water supply more resilient in the face of climate change.
Some £6 billion of this will go towards the construction of nine new reservoirs around the country and seven water transfer schemes, with around 8,000km of pipework due to be replaced.
A further £6 billion will go towards improving river quality by upgrading 1,500 wastewater treatment works, £1.4 billion will be spent on nature and catchment-based solutions and £10 billion will go on upgrading 2,500 combined sewer overflows.
At the time, chief executive David Black said “Customers want to see radical change in the way water companies care for the environment. Our draft decisions on company plans approve a tripling of investment to make sustained improvement to customer service and the environment at a fair price for customers.
“These proposals aim to deliver a 44 per cent reduction in spills from storm overflows compared to levels in 2021. We expect all companies to embrace innovation and go further and faster to reduce spills wherever possible.”
Although the initial costs of this investment will be funded through borrowing or by shareholders, the plans have drawn criticism from many quarters because the full amount will be recovered through future customer bill hikes, with a proposed rate of return of 3.72 per cent.
It’s expected that the average bill for the five years from April 1st 2025 will be around £19 per year, with the biggest permitted bill increase from Southern Water at £603 overall for the five-year period.
Bill cap warning issued
While £88 billion in funding certainly sounds like a lot, it seems that water companies in England and Wales don’t agree. The water industry initially asked Ofwat for permission to spend £104.5 billion over the next investment cycle, which would have seen the average domestic water bill rise by £144 over the five years.
According to the Guardian, trade association Water UK is now warning that water companies will find it hard to raise the money needed to carry out essential infrastructure upgrades and clear up the nation’s waterways under the regulator’s current plan.
The organisation believes that the bill cap proposals could potentially drive away the investors required for the system overhaul, with research submitted to Ofwat by consultancy service Oxera that sets out the case for higher bills and greater spending within the sector.
Seen by the news source, the study found that the proposed tighter spending targets would affect the water industry’s ability to deliver environmental and service improvements that consumers and stakeholders now expect and, as such, this would not be in the public interest.
The report noted: “There is a material risk that the sector is unable to raise the new equity investment required to finance the proposed investment programme, as well as the high levels of expenditure expected over the coming decades.”
In response, the GMB trade union – which represents more than 10,000 workers in the water sector – said the claims that the water bill cap will hinder the progress that needs to be made are “absolute balderdash” and that if investment is required, fundamental reforms of water companies themselves must take place.
GMB national officer Gary Carter said: “Water companies have had the money, failed to invest in plugging leaks and preventing sewage spills and now want more money to do what they failed to do.
“They have failed bill payers and their employees who have faced increased assaults and abuse because of the tarnished reputations of their employers. It’s time the shareholders paid for the investment the water companies promised but hasn’t delivered.”
The Oxera/Water UK study, however, interviewed 30 water industry investors and all voiced severe concerns about the approach that Ofwat is now taking, as well as the level of risk versus the proposed return.
It was found that investors, who are being asked to contribute billions in support of this investment programme, have insufficient confidence to provide that much of their own finance.
David Henderson, Water UK chief executive, commented on the findings of the report, saying that Ofwat no doubt has a difficult job but investors are saying that the approach must change in order to ensure the right conditions are implemented for investment. Otherwise, the environment and the economy will both pay the price.