Why will water bills need to rise?
As Thames Water publishes its draft investment plans for the next five year period (2010-2015), Chief Executive David Owens explains what this could mean for customers' bills.
"Everyone's feeling the pinch at the moment. Energy prices are going through the roof, petrol and food bills are skyrocketing. And now Thames Water is talking about raising bills. I know that rising household bills are a worry, and I think you deserve to know why we're proposing to increase ours.
"The first good news is prices are not going up today, or even tomorrow. What we're announcing is what we expect bills to be in two years time. Unlike gas and electricity suppliers, which seem to increase bills whenever they like, water companies are tightly regulated, which means that our prices are set in five-year periods. What this means for you is that every five years, we will be able to tell you, to within a pound or two, what your bill should be every year for the next five years.
"The next good news is that even by 2015, the average you should expect to pay will be around £1 a day or less, which is about an extra 3% per year on top of what you're already paying.
So why do bills need to rise?
"For the last two years we have been drawing together our business plans for the next five-year period, which starts in 2010. This includes the investment we will need to maintain current service levels, as well as improving them where necessary. It also includes the money we're going to need to cope with the expected growth in population in the Thames area, and the impact of climate change.
"It also takes account of how much it's likely to cost us to replace our ageing pipes. For instance, a third of London's water mains were built before the war. And no, not the Second World War, but the Crimean War.
"It also includes some of the biggest engineering projects in Europe, like the London Tideway Tunnels project, which the Government wants us to build to take sewage away from the River Thames, and the proposed Upper Thames reservoir in Oxfordshire.
"That all comes in at £6.5billion, the highest level of investment proposed by a UK water company ever.
"It's a lot of money, and it's not going to be easy to raise. Obviously, we get our funding from you, through your bills, but even with around five million bill payers, it's not enough. In fact we need to raise around half a billion to a billion pounds extra every year on top of what we get from bills. That extra money has to come from somewhere. Until now that's been from the financial markets, but we all know that it's getting more difficult to raise money for investment, just ask anyone who's tried to get a mortgage lately.
"So couldn't we simply scale down our plans? After all, our drinking water is independently verified as among the best in the country and our sewage treatment works meet the tightest environmental standards. Couldn't we carry on as we are?
"We don't believe so, and neither, more importantly do you. My vision for Thames Water is to be the company you would choose if you had a choice. It's vital that we understand what you want so we've held our biggest ever consultation, involving more than 3,500 individual customers and groups. You've told us what you want and how much you're willing to pay for it.
"So we know you want more done to reduce leakage, more people's homes to be protected from sewer flooding, and better customer service. You've also told us you want us to do more to reduce the odour from our sewage treatment works and to cut our carbon footprint. We agree with you.
"If we had put absolutely everything you asked for into our plans, the final cost would have been astronomical and in our view, unaffordable. So we identified key priorities and searched for where we could make savings from being more efficient, to keep your bills as low as possible. And we're introducing new measures to help our most vulnerable customers.
What happens next?
"We've now submitted these plans to Ofwat, our independent regulator, and they are going to examine our proposals and let us know whether they agree. They'll also decide the final price we're allowed to charge you. We should find out just how much in November 2009. The new bills will then come into effect in April 2010.
"We have been running a consultation on this website since August, which closes in a few weeks' time. You still have time to us know what you think and we look forward to hearing from you. If you'd like to get involved, follow the link below to our consultation website. Ofwat are going to consider what customers think when they make their final decision, so ultimately, this affects all of us."
David Owens
Chief Executive
