Down the drain: angry Thames Water customers face £29 fee to pay for super-sewer... days after Herne Hill flood

 
Waterway: The scene in Herne Hill Picture: Glenn Copus
12 August 2013

Millions of Thames Water customers face a shock “surcharge” on their bills next year to pay for higher than expected land costs on the £4 billion super-sewer and spiralling bad debts.

Company bosses said they need to claw back almost £165 million from the families and businesses it serves in London and the Thames Valley to balance the books.

The move was immediately attacked by the London water watchdog which said it would hit consumers hard.

Sir Tony Redmond, chairman of the Consumer Council for Water, said: “Many other water companies absorbed the costs Thames say they are facing and they have done so without applying for a further price increase. We believe Thames Water should do the same.”

If the proposals get the go ahead households will be asked to pay an one-off extra £29 in a move that is certain to provoke a storm of anger. Bills went up by 5.5 per cent - almost twice the rate of inflation - this year.

The move also comes days after dozens of homes and businesses were flooded in Herne Hill in south London after a main burst causing £4 million worth of damage.

Thames, which made £549 million profits and paid no corporation tax last year, applied today to the industry regulator Ofwat for permission to impose the levy in the 2014-2015 financial year.

But Thames Water chiefs insisted that while rising prices were “never good news” they were perfectly entitled to ask for the money from customers under the terms of its agreement with Ofwat.

External affairs director Richard Aylard said: ”This is money we’ve spent efficiently and spent under the regulatory contract. We need to get it back or the books won’t balance and we will only be storing up problems for the future.”

He added the company would ask Ofwat is it can spread the £29 surcharge over several years to reduce the burden, although there is no guarantee this will be allowed.

Thames said it negotiated the right to clawback some “unquantifiable” costs in 2009 when it agreed with Ofwat the level of bills it was allowed to charge customers between 2010 and 2015.

Stuart Siddall, Thames Water’s chief financial officer said: “During the five year period, almost all changes to costs and revenues, whether upwards or downwards, are up to us to manage. These include the costs of dealing with severe weather, changes to financing, employment, energy and chemical costs, business rates and tax.

“However there are always a small number of potentially significant costs and revenues that can be clearly identified but not quantified. These are set out at the time of the price review and either the company or Ofwat can seek an adjustment, upwards or downwards, once the actual costs and revenues are known. That is what we are doing now.”

The biggest single item is the higher than predicted bill for purchasing land on the river bank - such as the main drilling site at Chambers Wharf in Southwark - for its “Thames Tideway” sewer project aimed at ending sewage “dumping” in the Thames.

Rising property prices means this has come in at around £273 million more than forecast, said Mr Siddall.

The second biggest drain has been much higher than expected bad debts from customers unable or unwilling to pay their bills. The company is asking for the right to claim back £72 million from paying customers.

The third item concerns a change in the law in 2011 which transferred legal responsibility for 25,000 miles of sewer pipes close to homes from customers to the company. This has loaded a further £66 million to costs.

Finally, higher than expected Environment Agency “abstraction” charges for taking water straight out of rivers have added an extra £18 million to costs.

Some other costs have fallen so the net “loss” to Thames Water is £164.9 million, equivalent to an extra £6 a year on bills over the 2010 to 2015 price control period.

The average Thames bill is currently £354 a year, the second lowest in the country among major water companies

Bosses at the Australian backed water giant said it could have loaded even more but decided to absorb some itself such as a £35 million Government carbon emissions levy.

Mr Siddall added: “Increasing prices is never good news, which is why the company and its shareholders are encouraging Ofwat to adapt its regulatory mechanism to allow the impact of the price increase to be spread over more than one year to avoid a spike in bills for our customers.”

Thames Water chiefs insist that without the money, its profits will be less than expected by the financial markets, making the company a less attractive target for investment and increasing its cost of finance.

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