Water companies challenged by Ofwat to find extra £3bn in efficiencies in £44bn AMP6

Regulator backs October draft determination with 5% cut in water bills over next five years

Antony Oliver
12 December 2014

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Water companies have been challenged by regulator Ofwat to find additional efficiencies as they work to maintain and enhance water and sewerage network after regulator Ofwat opted to cut water prices beyond figures requested by industry 

As predicted by Ofwat’s draft determination in October, a 5% reduction in overall water bills is targeted by the regulator to see average national water bill fall across the next five year regulatory period from the current £396 a year to £376.

“Now the hard work begins. Companies will only build trust and confidence with their customers if they deliver". Cathryn Ross, chief executive of Ofwat 

Across this 2015-2020 AMP6 period water companies are expected to spend more than £44 bn on major challenges including: 

• Tackling leakage and boosting efficiency – Ofwat want to save 370M litres a day 
• Reducing the time lost to supply interruptions (down on average 32%);
• Cutting properties flooded by 4,700; and
• Improving water quality at more than 50 beaches.

Water companies submitted their plans for networks in England and Wales to Ofwat in December 2013, proposing bills drop by almost 2% in real terms. However, in line with the draft determination Ofwat has identified a further £3bn in savings across these business to set a challenging 5% refuction target. 

Companies with the biggest challenges include:

• Thames Water which asked for a 3% increase but now faces a 5% cut in bills. This figure includes the costs for the preparatory works to build the Thames Tideway Tunnel but does not include costs for the construction of the tunnel.
• Southern Water which asked for a 2% price fall but in fact faces an 8% price reduction 
• Wessex Water which proposed a 4% price fall but has been challenged with finding 9% efficiencies 

Companies have two months in which to accept Ofwat’s final determination, or seek a referral to the Competition and Markets Authority (CMA).

 “We set out to deliver a challenging but fair outcome,” said Ofwat chairman Jonson Cox. “We are requiring companies to meet higher service standards and deliver on their promises to customers. 

"Companies have worked extremely hard to deliver falling bills for customers while continuing to invest billions to improve services even further.”  Pamela Taylor, chief executive of Water UK.

He added: “Companies will need to stretch themselves to deliver much more with the same level of funding as in previous years. We will achieve more resilient infrastructure and better service as a result.”

Water UK, which represents water companies in England and Wales, said water companies had “listened hard to their customers and responded by putting in place plans that ensure bills remain affordable while continuing to invest billions each year”.  

It added that to keep customers' bills down in this period, the amount the companies provide to their debt and equity investors, who the sector relies on to fund investment in high-quality services to customers, will be reduced.

"Companies have worked extremely hard to deliver falling bills for customers while continuing to invest billions to improve services even further,” said Pamela Taylor, chief executive of Water UK.

"Our members have done more than just talk about responding to a cost of living crisis, they have taken action to deliver help where customers really need it, by reducing their bills," she added.

However Cathryn Ross, chief executive of Ofwat maintained a tough stance towards driving efficiencies into the sector

“Where companies stepped up to do the best they could for their customers we did not need to intervene. But where companies fell short we stepped in to make sure customers get a good deal.,” she said.

“Now the hard work begins. Companies will only build trust and confidence with their customers if they deliver. Those who do can look forward to fair returns, while those that don’t will be hit in the pocket and face a tough five years ahead.”