Thames Water: Draft Price-Setting Decrease Quality

David Owens, chief executive for Thames Water, said: "We've spent the past two years preparing our plan. We know our region better than anyone else and our proposals are based on sound evidence and, most importantly, what customers say they want. We're not prepared to cut corners on essential work - but we're not 'gold-plating' either.

"Thames customers have enjoyed the best-ever performance from their water company in recent years. For instance, we've hit leakage targets three years running and we achieved the highest-ever drinking water quality.

"It's  early  days  but  initial  indications suggest today's draft determination may not allow us to deliver what our customers want in the future. For example, this means we won't be able to reduce leakage at all over the next five years.

"We've said all along: a tough decision for Thames is simply a tough result for customers. We'll be working with the regulator to achieve the best result for our customers at the final determination in November."

In April this year all UK water firms submitted their plans for the next five years to Ofwat. Thames Water proposed GBP5.5bn of essential investment to maintain its best-ever performance levels and improve its crumbling Victorian pipes and sewers. This figure has been reduced to GBP4.6bn in Ofwat's draft determination.

There have been significant cuts to two areas that Thames Water customers give the highest priority - reducing leakage by replacing worn-out, cast-iron water mains and preventing sewer flooding in people's homes. Ofwat has almost halved Thames Water's proposed water mains replacement programme. This means no reduction in leakage will be made over the next five years, raising concerns that bursts may increase. The regulator's draft determination has also cut by almost a third the funds available to tackle sewer flooding at people's homes.

In addition, Ofwat proposes that Thames installs 270,000 less water meters than the 488,000 planned. Meters encourage more efficient water use and fairer bills.

Despite the economic downturn customers still consider paying higher water bills acceptable in return for essential investment to safeguard and improve services, according to an independent 'willingness to pay' study of 300 customers carried out last month by Nera, the consulting experts.

Mr Owens added: "Decades of under-investment mean our bills - among the UK's cheapest - are unsustainably low. Although bills must rise to fund much-needed upgrades to our crumbling Victorian pipes and sewers, we're proposing to keep them as low as possible - less than GBP1-a-day by 2015, which is below the forecast industry average.

"Even the most recent independent research shows Thames Water customers understand and support the need for price rises - even in these challenging economic times. We're balancing the need for GBP5.5bn of essential investment over the next five years with customers' willingness and ability to pay.

"This study shows that customers see our proposed five-year plan to fix our ageing infrastructure as essential investment for the long-term.

"We're in tough economic times and that's why our plans for the next five years include introducing a Social Tariff, a mechanism by which our poorest customers get help. We very much hope Ofwat approves this part of our plan, which shows our commitment to help those in financial hardship."