Page last updated at 16:43 GMT, Thursday, 23 July 2009 17:43 UK

Ofwat calls for lower water bills

How a water meter and rainwater butts can result in bills of 10 a month

Water companies' bids to raise prices between 2010 and 2015 have been snubbed by regulator Ofwat, which wants average household bills to fall instead.

Taking out the impact of inflation, the regulator wants the typical bill in England and Wales cut by £14 to £330.

According to the regulator, the proposals will allow water companies to invest £21bn in improving services over the next five years.

But companies suggest that customers might suffer as a result of the plans.

Every five years, Ofwat sets limits on prices that water companies in England and Wales can charge.

Water and sewerage services in Scotland and Northern Ireland are regulated separately.

'Value for money'

Water companies submitted their business plans to Ofwat in April, and the regulator has now set price limits as well as suggested investment levels for each individual water supplier.

People can shop around for the best deal on many things, but not water
Regina Finn, chief executive, Ofwat

There will now be a consultation period until a final decision from the regulator in November.

The water companies have an opportunity to renegotiate in September and they can also appeal to the Competition Commission.

The new bills will then come into effect in April 2010.

"People can shop around for the best deal on many things, but not water. That's why we've challenged the companies' plans rigorously to ensure that customers get the best value for money," said Ofwat chief executive Regina Finn.

"We understand times are hard and we have listened to what customers have told us. They want safe, reliable water supply at a reasonable cost," she added.

'Worries'

Ofwat's proposals would see the average bill fall to £330 a year by 2015, as against a rise to £375 that the water companies had proposed in their business plans. Ofwat last ruled on a cut in average household bills in 1999.

PREVIOUS DECISIONS
2000-05: Fall of 12% (£30 drop)
2005-10: Rise of 18% (£46 up)
2010-15: Fall of 4% (£14 down)*
Source: Ofwat - average household bill before inflation

* Proposals only

But companies said that if these latest plans were confirmed, they could affect customers.

"Initial indications suggest the draft determination may not allow us to deliver what our customers want in the future. For example, this means we will not be able to reduce leakage at all over the next five years," said David Owens, chief executive for Thames Water - the UK's largest water company.

And Pamela Taylor, chief executive of Water UK - which represents the water suppliers - told the BBC: "It could be that some things such as increased metering programmes may be at threat. Companies will have to look at that in the round and see, can they still deliver."

She said Ofwat demanded that the water companies met a number of obligations, such as protecting rivers and bathing waters, and that needed investment.

Last time Ofwat set limits in 2004, the water companies asked for an average price increase of 29%, or £72 before inflation, over five years.

The regulator initially suggested it would allow them a rise of 13%, or £33, but ultimately allowed them to raise prices by an average of 18%, or £46 before inflation, and was criticised by some consumer groups for its leniency.

Shares fall

Customers of Essex and Suffolk Water will see the biggest rise in water bills in 2010-15 under the Ofwat proposals, up 9% or £15.

Sink
Price rises come into effect on 1 April 2010

The biggest fall - for water and sewerage companies - will come for customers of Dwr Cymru, with the average household bill down 9%, or £35. For water-only suppliers, the biggest drop is 14%, or £13, for Portsmouth Water customers.

Ofwat's plans demand that bills are 12%, or £45, lower by 2015 than the average that the companies had asked for. The biggest difference between the companies plans and the Ofwat proposals was at Thames Water (15%) among the water and sewerage companies, and at Sutton and East Surrey Water (27%) for the water-only providers.

On the London Stock Exchange, shares in the listed water companies fell in value following the news. By market close, Severn Trent shares dropped 7.3%, United Utilities lost 4.6%, South West Water-owner Pennon was down 3.4% and Northumbrian Water fell 3.3%.

All of these companies said they were studying Ofwat's proposals carefully before responding, although Tony Wray, chief executive of Severn Trent Water, described his company's original proposal as "balanced, holistic and robustly justified".

PROPOSED WATER BILL CHANGES

Average prices between 2009-10 and 2014-15

Company Avge bill 2009-10 Avge bill 2014-15 % change excluding inflation
Water and sewerage companies
Anglian Water £389 £357 -8%
Dwr Cymru/ Welsh Water £404 £368 -9%
Northumbrian £314 £320 2%
Severn Trent £305 £281 -8%
South West £488 £458 -6%
Southern £380 £373 -2%
Thames £303 £304 0%
United Utilities £377 £359 -5%
Wessex £412 £403 -2%
Yorkshire £331 £326 -2%
Water-only companies
Bournemouth & W Hants £133 £133 0%
Bristol £157 £151 -3%
Cambridge £121 £110 -10%
Cholderton £212 £189 -11%
Dee Valley £128 £125 -2%
Essex & Suffolk £169 £184 9%
Folkestone & Dover £197 £177 -10%
Hartlepool £127 £125 -2%
Portsmouth £93 £80 -14%
South East £169 £160 -6%
South Staffs £124 £121 -3%
Sutton & E Surrey £165 £152 -8%
Tendring Hundred £175 £154 -12%
Three Valleys £160 £142 -11%

Weighted average of water and sewerage bills
All figures exclude inflation



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