Water companies have pledged record investment between 2025 and 2030 but have warned customers that significant bill hikes will be necessary and told the regulator that investors will need to see fair returns.
Across the board, average bills are expected to rise by £156 a year over the second half of the decade although the level of increase and the speed at which it will be implemented varies by water company.
The highest percentage bill increase put forward so far is from Southern Water, which has forecast a maximum 64% uplift in the average bill to £674 at the end of the decade to fund its £7.8 billion total spend. The company believes it can mitigate some of this rise, although still expects at least a 44% uplift.
Thames Water bills would go up 40% under its plans to invest a total of £18.7 billion over the asset management period (AMP). Welsh Water expects its bills to go up 26%, while all water and sewerage companies (WASCs) project hikes over 10%.
While companies such as Northumbrian Water stress that their customers told them of the importance of a phased increase in bills, Yorkshire Water has opted for an immediate 18% spike in the first year of AMP8.
Despite having the largest project bill at the end of the decade, Southern insisted it had avoided a possible £192 on top of this through mitigating action. These mitigations include moving £1.3 billion of possible spend into direct procurement.
They also include the introduction of “more cost-reflective” surface water drainage charges, which Southern thinks could reduce average wastewater bills by 7%. The company also wants to phase out discounts some large users currently receive and introduce seasonal or rising block tariffs.
Tariff innovation was a feature of several of the plans, with Pennon Group seeking to mitigate the surge in demand in the south west every summer with peak charging.
Spending targeted towards protecting the environment was a feature of many of the business plans, although much of this is driven by statutory requirements. In particular the tackling of combined sewer overflows dominates the plans of the WASCs, with a combined £11 billion investment.
All of the business plans stress the need for fair returns to investors as part of an unprecedented injection of new equity into the sector. Northumbrian’s plan includes a statement from shareholders, who said they were willing to invest £400 million of new equity investment. However, the statement said Ofwat’s eventual decisions on returns to shareholders and incentive payments “will play an important role in how the investment committees of each shareholder will evaluate any such PR24 equity investment proposal”.
Northumbrian’s plan is based on Ofwat’s early view of 6.22% return on equity, however the company has also provided an “alternative view” of 7.44%, in recognition of the “prodigious increase in the amount of private capital that will be needed in the business”.
You can read Utility Week’s summary of the business plans submitted by WASCs here .