Ofwat halves water company price rises

Ofwat, the water regulator, has published its draft price determinations allowing water companies to raise the average household bill by 13%, from £249 to £282 over five years, less than half of the 29% increase the companies had been asking for.

The draft determinations are part of the fourth periodic review of water prices whereby the regulator sets prices for the water and sewerage companies in order for them to finance their functions, while at the same time protecting consumer and environmental interests (see related story).

Explaining the draft price limits announced today, Philip Fletcher, Director General of Water Services, said he believed the decisions were fair to customers and the companies and would benefit the environment.

"After close scrutiny of the companies plans we consider that they can carry out their essential functions over the next five years for around half the average increase in cost to customers which the companies proposed. The picture varies from company to company. We have made realistic assumptions about the prospects for further efficiency gains. We have also taken account of unavoidable cost pressures on the industry," he said.

"We have provided for a substantial increase in work on maintaining pipes, sewers and treatment works. We must safeguard water companies assets and promote secure supplies, both now and in the future."

Ofwat says its pricing plan allows for 94% of the schemes to enhance the environment and quality of drinking water and about 80% of company proposals to deal with sewer flooding in homes. In a statement Ofwat also said that the price limits assume that all companies will improve further.

The price determinations were broadly welcomed by the Environment Agency.

"Ofwat has set challenging price limits, requiring water companies to deliver an improved service to customers while ensuring household water bills do not rise too steeply," Andrew Skinner, the Environment Agency's Director of Environmental Protection said. "But we are disappointed that some of the savings have only been achieved by shelving essential schemes to benefit the environment. We think more could and should be done and that £3.2 billion of capital investment for environmental quality out of a total five year bill of £15.7 billion announced by Ofwat is a modest share."

Work that will be funded in the plans includes investigations into how to stop sewage effluent causing sex changes in fish (see related story), as well as programmes to improve rivers, lakes and wetlands. However, schemes such as protecting bathing waters from the effects of pollution from storm sewage discharges in the North West have been dropped.

In addition, the Thames Tideway tunnel, a project to take storm water away from London's Victorian sewerage system, the problems of which were highlighted this week (see related story), to sewage works down river, have also been scrapped.

Norman Baker MP, Liberal Democrat Shadow Environment Secretary, said he was pleased that Ofwat had not caved into pressure from the water companies to hike water bills by 29%, but called for assurances from the water companies that they will not use this as an excuse to cut back on vital environmental works.

"The ideal must surely be a system that is good for consumers and good for the environment. The only realistic solution is universal water metering, which keeps bills down by curbing consumption and obviating the need for new infrastructure. The sooner Ministers acknowledge this the better for everyone," he said.

The need to manage demand was also called for by Mr Skinner who said he would continue to look to Ofwat to fund work to establish the benefits of demand management measures.

"This latest round of water prices looks better for both consumer's pockets and the environment, but before the final prices are determined in December we will be pressing further for an even better deal for the environment," Mr Skinner said.

By David Hopkins



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