Ofwat is giving notice to Thames Water that it is making counter-claims relating to underinvestment in sewer flooding and the wastewater network in response to the utility’s request for a price rise in 2014/15.

Thames Water applied to the regulator for an interim increase in customer bills next year after it experienced changes to certain specific costs that were not anticipated by Ofwat, when price limits were last set in 2009 for the period 2010-15. The requested increase could add 8% - or £29 a year - onto the average household bill.

Ofwat has today announced the process for challenging Thames Water’s request for an interim increase in customers’ bills for next year.

The regulator is assessing Thames’s application to determine whether increases are justified. The regulator is examining Thames’ evidence of increased costs and has considered what counter-claims it should investigate on customers’ behalf. Counter-claims are an established part of the regulatory regime, and could reduce the level of any bill increases by deducting gains made by Thames over the current regulatory period.

Ofwat can make counter-claims where the company has not delivered outputs for which customers have been paying. Ofwat is giving notice to Thames that it is making three such counter-claims relating to:

• underspend on sewer flooding;
• a significant slippage in part of Thames’ investment programme for sewage treatment; and
• not adequately maintaining parts of its wastewater network.

Ofwat is also looking at whether Thames has benefited from wider economic circumstances beyond its control, and whether it can deduct these gains through an established regulatory process called the ‘substantial favourable effect’ mechanism. As Thames is the only company to have applied for an additional increase in bills before the next price review, Ofwat said it will only examine whether there is a case for clawing back gains through this mechanism from Thames.

Ofwat’s Chief Regulation Officer Sonia Brown said:

“We have been clear that we would challenge Thames’ proposed bill increase. So we are looking to see if there are areas where we can claim money back for customers.”

The regulator will publish its draft decision on the application for an interim increase in mid-October. There will then be a short, technical consultation period, followed by a final decision in early November. Any permitted revisions to price limits would apply to customers’ bills from April 2014.