Thames Water Utilities Limited
submits its formal response to its PR24 Draft Determination for
2025 to 2030
Thames Water Utilities Limited has
today submitted its response to Ofwat's draft determination for
2025 to 2030, as part of Price Review 2024 (PR24). Link
here
Chris Weston, CEO Thames Water, 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 have listened carefully to
Ofwat's feedback and have responded constructively to address the
issues raised, updating our plan to reflect stretching goals, while
offering changes that would give us the opportunity to secure the
necessary investment so that our ambitious plan can be delivered
for our customers and the environment.
"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 £2.7billion 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. In parallel, we are increasing
our support to bill payers by introducing an improved social tariff
for those struggling to pay, increasing by nearly 70% the number of
those who will benefit from this support, to 647,000 households.
"Despite our near-term financial
resilience challenges, our essential services continue. We
will continue to deliver 2.6 billion litres of water and remove 5.1
billion litres of wastewater for our 16 million customers each day
including in one of the most congested and costly cities in the
world."
Sir
Adrian Montague, Chairman of Thames Water said:
"Thames Water's plan has the full
backing of the board. It sets out a path to adapt the
business for the future and improves its service in the face of
climate change and population growth.
"Ofwat's draft determination and our
response to it is one stage in the process - there will be many
subsequent stages.
"The company and its leadership team
are absolutely focused on the ambitious outcomes it aims to deliver
for customers and the environment, and the role we play in enabling
growth across our economy.
"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."
Thames Water's Draft Determination Response
Thames Water has an ambitious
£20.7bn core plan with an additional £3bn through
gated mechanisms that we believe we can
deliver with the right regulatory settlement.
Even with this level of ambition, we
have had to make tough choices. We cannot deliver everything for
all stakeholders at pace and for the prices of the past. We will
therefore focus on things that our customers have told us matter
most.
Our business plan will see customer
bills increase to fund much needed investment. By the end of
2030, the average monthly customer bill will have increased by
£18.99 from what they pay today in real terms. We are committed to
doing our best to ensure that customers do not pay more than they
need to for vital investment by becoming a more agile, efficient,
and responsive company and we will ensure we support our customers
who will struggle to pay.
We have listened carefully to
Ofwat's feedback. We have been through a rigorous process to
challenge our plans and stretched ourselves to deliver more where
we can. However, the scale of the cuts
Ofwat proposes in its draft determination, a 25% decrease to our
proposed expenditure, is not tenable and renders our plan uninvestible. This would leave us with a multi-billion pound gap between what we
are allowed to charge our customers and what is needed to deliver
against the ambitions that customers and stakeholders have set for
us.
We accept many of Ofwat's proposals
including most of the water performance commitments, which reflects
the material improvements in the overall performance of our water
services.
However, we have significant
concerns in other areas. This includes wastewater, where
Ofwat has cut our proposed enhancement expenditure in half and has
set targets that are unachievable. These expose the company
to disproportionate penalties and excessive downside risk,
impacting investibility and ultimately our 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.
With the right regulatory
settlement, as well as the energy and commitment of the teams
across our business, we can meet the challenges we face over the
next control period and beyond; we can achieve our ambition to
deliver greater resilience and improved operational, environmental
and customer performance.
We know Ofwat will give full
consideration to our response and we stand ready to work with our
regulators in the best interests of customers and the
environment.
Thames Water's response to the PR24 draft determination
consultation:
Investing £20.7 billion and an
additional £3bn through gated mechanisms to maintain safe high
quality drinking water, ensure security of water supplies and
deliver further environmental improvements.
Our
plan will deliver a reliable, secure and affordable service for
customers by:
- Preserving
a reliable supply of water, with minimal disruption
- Replacing
over 570km of water mains
-
Maintaining safe, high-quality drinking water by replacing 54,000
lead pipes
- Upgrading
150km of sewers to lower the risk of sewer collapses
- Reducing
the number of times sewage floods into properties by 16% as well as
all other external sewer floods by 14%
- Providing
over 647,000 households with meaningful support with their water
bills
- Resolving
more billing and operational issues within 24 hours by improving
digital infrastructure, allowing customers to resolve more issues
online
Our
plan will further materially improve Thames Water's environmental
footprint by:
- Reducing
storm overflows by 34%
- Reducing
the total number of pollution incidents by 30%
- Opening
the Thames Tideway Tunnel, London's "super sewer", the third phase
of improvements that will increase the health of the river by
reducing combined sewer overflows by c.95%
- Investing
to improve the bathing water quality at Wolvercote Mill
Stream
- Spending
over £2.5bn to deliver a 21% reduction in leakage (based on a 2020
baseline)
- Reducing
water use per person by 4%
- Continuing
our industry leading roll out of 1 million smart meters to make it
easier for customers to save money and find leaks
- Ensuring
water security for this and future generations, including
consulting and planning for a reservoir near Abingdon
The
proposals in our response to Ofwat would support the financeability
and investibility of our 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 our plan
Investor enquiries
Frederick Maroudas - Director of Corporate
Finance
debt.investorrelations@thameswater.co.uk
Media enquiries
Suvra Jans - Head of Media
Relations
suvra.jans@thameswater.co.uk
M: 07747 640 810
