Ofwat has allowed Thames Water £16.9 billion to invest on improving services for customers and the environment in the upcoming 2025-30 investment period - £5 billion less than the company had requested in its AMP8 Business Plan.

The regulator said the reduction was because it had not allowed claims where funding has already been provided or where claims have not been well justified in the company's plan.

Around £3.3 billion of the allowed funding is conditional on the company demonstrating it is ready and able to effectively deploy investment or that the investment will be effectively and efficiently targeted. Ofwat said that the price review process ensures that funds provided by customers will be clawed back if any of the allowed investment is not delivered.

As a result of Ofwat’s scrutiny, Thames' proposal to increase bills to an average of £627 will not be supported and instead average bills will be £535 by 2029/30, from the current average of £436.

Turnaround Oversight Regime

Given the regulator’s concerns about the performance of the company, Ofwat is also placing Thames Water in a Turnaround Oversight Regime. This will include:

• a requirement to provide a 'delivery action plan' which sets out the actions the company proposes to take to expand its delivery capacity. The company must report on its progress regularly, subject to review and additional scrutiny by an independent third-party assurance provider;
• a requirement for the company to fully re-evaluate its plans for transformation in order to demonstrate how it will deliver the necessary step change in operational performance;
• a requirement for the company to provide a financial resilience plan in response to the draft determinations. Ofwat will continue to monitor and engage with the company on its financial resilience.

In addition, Ofwat is considering appointing an Independent Monitor to monitor and report on the company's progress, including against its transformation plan. The Independent Monitor would report back to Ofwat and be entitled to full access to company information.

The company will remain in the Turnaround Oversight Regime for so long as Ofwat considers it necessary for there to be additional performance reporting or oversight of the company. Factors relevant to any decision to remove the company from the Turnaround Oversight Regime will include evidence of:

• sustained improvement in operational performance;
• sustained improvement in capability for delivery of the investment programme; and,
• an improvement in medium term financial resilience.

Announcing its decision in a separate Information Note “given the interest in Thames Water and the significant operational and financial issues it must address”, Ofwat said:

"The draft determination provides the company with significant funding and the opportunity to turn its performance around. We will seek engagement with incoming investors as it aims to do so.

"But, the company will need to provide us with sufficient confidence that it can maintain adequate levels of financial resilience in the medium term before it exits the Turnaround Oversight Regime. In doing so, that could mean introducing a limit on the amount of debt the company can take on, a separation of the business into two or more water companies, or looking to a public listing to secure additional equity.”

Commenting in response, Thames Water said:

"We believe our plan is ambitious, deliverable, financeable and investible. It is also underpinned by a package to support over 500,000 customers with reduced bills.

"Ofwat’s draft determination understandably challenges us on efficiency and delivery. They have been thoughtful in considering the funding we need for our day to day running costs and the improvements our customers and communities want to see.

"Although Ofwat currently categorises our business plan as ‘inadequate,’ this judgment rests on over 20 very specific tests around the scope of information to be provided, and evidence required to depart from Ofwat’s own assumptions. Ofwat has made clear it will revisit its view if we provide further evidence to reach a final determination that is, in the round, affordable for customers, deliverable, financeable, as well as investable. We welcome the opportunity to provide Ofwat with further evidence about the need for the investment we plan to make, our costs and how we will deliver it."