A report by Bloomberg New Energy Finance calculates that Thames could deliver an after-tax return on equity of 24% if it was allowed to charge customers an extra £80 a year to cover the costs of the tunnel. That is three times the industry average of 7% return on equity, which Bloomberg calculates Thames could deliver by lifting bills by £31-35.
However, Thames Water has hit back, saying that the £80 a year figure Bloomberg has used represents the maximum bill impact, which would only occur in the mid-2020s, and that price rises will be gradual, starting next year. It will provide an updated estimate of these annual costs to Ofwat in its PR14 bid in December.
A spokesman for Thames Water said: “Thames Water, Ofwat and government expects the tunnel to be financed and built by a company separate to Thames with its own licence from Ofwat.
“Thames Water shareholders will not participate in this company and therefore will not benefit from this arrangement, which will be closely monitored by Ofwat.”
Thames Water said the Tunnel is necessary in the overdue upgrading of a Victorian-era sewer network.
The spokesman for Thames Water said: “A decade of study has found that a programme of work that includes the Thames Tideway Tunnel is the only cost-effective way of tackling, to the standards set by the Environment Agency within the time frames set by the Government, the problem of tens of millions of tonnes of sewage a year overflowing into the tidal River Thames from a Victorian sewer network that London has outgrown.”
Last week, Ofwat refused Thames’ application for an interim determination lifting bills by £8 a year in 2014-15, subject to consultation. Thames had asked for the rise largely to cover the cost of preparations for the tunnel.