Average water bills to rise by 36% over next five years

(Sharecast News) - Average water bills are to rise by over a third in the next five years, the UK regulator confirmed on Thursday.

Announcing its final determination for the five year period to 2030, Ofwat said average bills would increase by 36% in England and Wales, the equivalent of around £31 per year.

The amount is higher than the 21% Ofwat initially proposed but below the water companies' request for an average rise of 40%. They insisted a larger hike was needed to fund investment in aging infrastructure.

Criticism of water companies has become increasingly vocal in recent years. Many stand accused of repeated leaks and sewage spills, polluting rivers and the sea and failing to invest.

They have also been criticised for continuing to pay out executive bonuses and dividends despite poor service records.

The exact amount bills will rise will vary from utility to utility.

Crisis-hit Thames Water, which is at risk of being renationalised, has been permitted to hike bills by 35%, far lower than the 53% increase it was seeking. Thames Water was also hit on Thursday by a £18.2m fine, after Ofwat found its dividend payments last year breached its licence conditions.

Water companies, which were privatised in 1989, are required to reach settlements every five years with Ofwat. The agreements cover bill increases, the amount they can invest and the returns investors can make.

Under this determination, as well as bills going up, Ofwat said it had approved "substantial improvements" for both customers and the environment through a £104bn upgrade.

Chief executive David Black said: "Today marks a significant moment. It provides water companies with the opportunity to regain customers' trust by using this £104bn upgrade to turn around their environmental record and improve services to customers.

"Water companies now need to rise to this challenge. Customers will rightly expect them to show they can deliver significant improvement over time to justify the increase in bills."

Blue chip United Utilities Group, which has been allowed to increase bills by 32%, less than the 36% it requested, said: "The final determination is a detailed publication that will take time to review thoroughly, and we have until 18 February to respond."

Two of the biggest rises will be paid by customers of Southern Water and Severn Trent Water. Southern, which had sought an 83% hike, was awarded 53% increase, while Severn Trent has approval to lift bills by 47%.

Severn Trent, which had had requested approval for a 54% hike, welcomed the final determination, but said it too would now review it over the coming weeks.

Pennon Group, which owns South West Water and Sutton and East Surrey Water, said it was reviewing the documentation ahead of a capital markets event on 25 February.

It added: "Ofwat continues to recognise the 'outstanding' nature of South West Water's original business plan...while SES benefits from a five basis points uplift for a 'good' plan."

South West Water requested a 26% increase for bills and has been permitted a 23% uplift.

Russ Mould, investment director at AJ Bell, said: "The reputation of the water utility industry must be plumbing new depths, and news of further price rises will have done nothing to burnish its standing with the general public.

"The market seems to be more favourable, judging by the increase in share prices of Pennon, United Utilities and Severn Trent, even if the regulator hasn't allowed price increases quite on the scale the sector was looking for.

"The problem child in a family of delinquents remains Thames Water, and the smaller than requested increase in bills it received is unlikely to be sufficient to resolve its financial problems."

Thames Water said it would set out by early February what customer would pay from April. It added: "Given its importance and complexity, Thames Water will take time to review the determination in detail before making its response."

Thames Water is drowning in debts of around £19bn. It is trying to secure new funding but has previously said a significant hike to bills was essential if it is to raise fresh equity.

As at 1145 BST, shares in Pennon were up 4% at 607p, United Utilities was 1% stronger at 1,071p and Severn Trent was ahead 2% at 2,593.31p.