The Water Services Regulation Authority (Ofwat) has published its draft determination for the April 2025 to March 2030 regulatory period setting out what it expects of water companies.
The £88bn total expenditure proposed is £16bn lower than what was in the water companies' business plans. Ofwat said that this reflected its analysis of those plans, removing or reducing costs where expenditure was insufficiently justified, inefficient or for activity for which companies have already been funded.
£35bn of the expenditure reflects the investment needed to reduce pollution, improve customer service, river and bathing water quality, and deliver greater resilience to the impact of climate change, it said. This is more than a trebling of the level of investment in the 2020 to 2025 period.
The water companies wanted to increased customers’ bills by an average of £144 over the five years. Ofwat has reduced this to £94 (£19 a year), excluding inflation. Thames Water's proposed increase of £191 by 2030 has been reduced to £99; Severn Trent's proposed increase of £144 has been reduced to £93.
The overall investment programme is expected to reduce the number of spills from storm overflows by 44% (compared with 2021 levels) by spending £10bn and upgrading 2,500 storm overflows; this includes the 21% reduction that Ofwat has required companies to deliver by 2025 at their own expense.
Some £6bn is to be invested in securing water supplies, including progressing nine new reservoirs and seven large-scale water transfer schemes.
Water companies will be required to replace around 8,000 km of water mains pipes, a 400% increase compared with the current five-year period.
These draft decisions are open for consultation and responses are welcome from customers, stakeholders and water companies. The deadline for consultation responses is 12 noon on 28th August 2024.
Ofwat expects to publish its final decisions on 19 December 2024. If companies do not agree with the final decisions, they have two months from the date of publication to ask for an appeal to the Competition & Markets Authority.
Ofwat chief executive David Black said: "Customers want to see radical change in the way water companies care for the environment. Our draft decisions on company plans approve a tripling of investment to make sustained improvement to customer service and the environment at a fair price for customers.
"These proposals aim to deliver a 44% reduction in spills from storm overflows compared to levels in 2021. We expect all companies to embrace innovation and go further and faster to reduce spills wherever possible.
"Today's announcement also increases the resilience of our water supplies to the impact of climate change and will reduce how much water is taken from rivers by enabling a range of long-term water supply projects, which includes plans for nine reservoirs.
"Let me be very clear to water companies. We will be closely scrutinising the delivery of their plans and will hold them to account to deliver real improvements to the environment and for customers and on their investment programmes."
Coinciding with Ofwat’s draft determination, the new secretary of state for environment, food and rural affairs, Steve Reed, has written to the regulator to ask it to make sure that infrastructure funding is ringfenced and can only be spent on upgrades benefiting customers and the environment. He also wants Ofwat to ensure that when money for investment is not spent, companies refund customers, with money never allowed to be diverted for bonuses, dividends or salary increases.
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