Ofwat has today finalised decisions which mean average bills for water and wastewater customers in England and Wales will fall by around 5%, before adjustments for inflation, between 2015 and 2020.

This would see average bills fall by around £20 from £396 to £376. Companies are set to spend more than £44 billion or around £2000 for every household in England and Wales over the next five years.

In addition to a positive or negative allowance from Ofwat, the companies can raise their bills in line with inflation (RPI) on a year-by-year basis.

The water industry regulator said that at the same time customers will see improved levels of service and that by 2020 they will benefit from substantial improvements in areas that really matter to them, including:

• more than 370 million litres a day saved by tackling leakage and promoting water efficiency – enough water saved to serve all of the homes in Birmingham, Manchester and Leeds;
• a reduction in the time lost to supply interruptions (down on average 32%);
• 4,700 fewer properties flooded by sewer water; and
• cleaner water at more than 50 beaches.

The number of people benefiting from financial support will more than double to around 1.8 million by 2020. Currently around 760,000 people benefit from some form of financial support from their water company. Over the next five years, companies are putting in place measures, such as social tariffs, which are forecast to help an additional one million people.

Thames Water’s figures includes the costs for the preparatory works to build the Thames Tideway Tunnel - however, it does not include costs for the construction of the tunnel. which will be financed and delivered by an independent infrastructure provider. 

Following direct engagement with a quarter of a million customers across England and Wales, companies submitted their plans to Ofwat in December 2013, proposing bills drop by almost 2% in real terms. Ofwat said that since then it has worked with companies to deliver a further £3 billion savings for customers.

Ofwat’s announcement includes the decision to lower further the weighted average cost of capital (WACC), which is the minimum rate of return that lenders or investors require to support investment in the sector. Since its initial proposal of a WACC of 3.85%, Ofwat has updated its decision to reflect current market evidence on required returns, resulting in a WACC of 3.74%.

Jonson Cox, Chairman of Ofwat said:

“This is an important step in maintaining customers’ trust and confidence in the water sector. We set out to deliver a challenging but fair outcome. We are requiring companies to meet higher service standards and deliver on their promises to customers. We are bringing down bills so customers can expect value for money, while investors can earn a fair return. 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.”

Cathryn Ross, Chief Executive of Ofwat said:

“With bills held down by five per cent and service driven up over the next five years, customers will get more and pay less. 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. 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.”

The new charges will come into effect in April 2015. The companies now have two months in which to accept Ofwat’s final determination, or seek a referral to the Competition and Markets Authority (CMA).

Changes to average annual combined bill for water and sewerage companies

Changes to average annual bill for water only companies