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Thames Water Utilities Limited submits its formal response to its PR24 Draft Determination for 2025 to 2030

An image of a Thames Water van on site

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