”Thames Water has warned Ofwat that on the basis of its draft determination for its AMP8 Business Plan, both Thames’ own and independent analysis shows that the plan would be “neither financeable nor investible and therefore not deliverable.”

The warning comes from CEO Chris Weston in the company’s formal response submitted to Ofwat yesterday to its PR24 Draft Determination for 2025 to 2030.

Chris Weston, CEO said:

“We have proposed a highly ambitious business plan for 2025-2030 based on customers’ feedback and insight. Our customers told us to focus on delivering safe and resilient water supplies, and address concerns over our overall performance including on customer service and dealing with wastewater.

“On the basis of the draft determination given to us by Ofwat, both our own and independent analysis shows that our plan would be neither financeable nor investible and therefore not deliverable. It would also prevent the turnaround and recovery of the company…..

“We want to deliver a considerable increase in investment in our infrastructure, with total expenditure of £20.7bn in our core plan and a further £3bn through gated mechanisms.

“Over the last three regulatory periods we are forecast to spend over £2.7 billion more than our allowances. Structural underfunding has led to significant asset health challenges alongside a substantial increase in the group’s leverage.

“The money we’re asking for from customers will be invested in new infrastructure and improving our services for the benefit of households and the environment. They are not being asked to pay twice, but to make up for years of focus on keeping bills low.”

Sir Adrian Montague, Chairman of Thames Water said the plan has the full backing of the water company’s board – he commented:

“After decades of focusing on keeping bills low, now is the time for difficult choices. It’s the responsibility of the company, our regulators and the Government to seek solutions in the best interests of customers and the environment. We will continue to work collaboratively as we launch our process to raise the equity we need and seek a final determination that enables the delivery of our ambitious plan.”

The Draft Determination Response says that Thames has had to make tough choices and it “cannot deliver everything for all stakeholders at pace and for the prices of the past.”

Thames AMP8 Plan would see average monthly bill for a Thames Water customer increase by £18.99 a month by end of 2030

By the end of 2030, the average monthly bill for a Thames Water customer will have increased by £18.99 from what they pay today in real terms. 

The proposed increase is greater that the previous proposed increase of 44 per cent, which Thames first submitted to Ofwat in April. Thames Water has now proposed raising average annual water bills by 52 per cent to £666.50 per customer by 2030 to fund much-needed investment in its infrastructure. If the water company is given extra spending allowances by Ofwat this could increase further to £696, representing a 59 per cent rise.

According to the Response, the scale of the cuts the regulator has proposed in its draft determination - a 25% decrease to Thames Water’s proposed expenditure - is not tenable and renders the plan uninvestible. The cuts would leave the company with a multi-billion pound gap between what it is allowed to charge customers and what is needed to deliver against the ambitions that customers and stakeholders have set for Thames.

The Response also flags up Thames Water’s “significant concerns” in other areas, including wastewater, where Ofwat has cut its proposed enhancement expenditure in half and has “set targets that are unachievable” which “expose the company to disproportionate penalties and excessive downside risk, impacting investibility and ultimately the company’s ability to deliver better infrastructure.

“This is clearly an area of concern for our customers and it is important that this is addressed before the final determination.

“In our response we have provided evidence, argument and independent assurance to demonstrate to Ofwat that this gap needs to be closed. We have provided a way forward that seeks to re-calibrate Ofwat’s decisions to enable us to meet customers’ expectations and ensure Thames Water is a viable and investible business.”

According to Thames, the proposals in its response to Ofwat would support the financeability and investibility of its business plan by:

• Delivering c.30% real RCV growth over AMP8
• Embedding the turnaround in operational performance required to ensure median performance by end of AMP8
• Targeting robust investment grade credit ratios
• Proposing an industry weighted average cost of capital of 4.6% (real)
• Reducing average gearing below 75%
• Attracting the necessary equity to deliver the plan

The water company's Response runs to many hundreds of detailed primary and secondary documents supporting theiir case. 

The Response is unlikely to qualify as the revised AMP8 Business Plan which Ofwat last week instructed Thames Water to develop and submit by 28 August.

Click here to read Thames Water,s Response to Ofwat's Draft Determination.