INDUSTRY regulator Ofwat yesterday said it plans to block Thames Water’s request to raise customer bills by eight per cent next year, on the grounds that it is unjustified.
The watchdog has published a draft decision to reject the proposal – which would add an extra £29 on to the annual average household bill – following Thames Water’s application in August to increase its bills.
“We said we would challenge Thames Water’s request,” said Ofwat’s chief regulation officer Sonia Brown.
“We have looked at the details and do not believe the current evidence justifies an increase in bills.”
Ofwat said that to justify a price rise, Thames Water would have to demonstrate that higher costs warrant an increase in bills of £9 or more, but the current evidence only justifies a £7 increase.
Thames Water now has the opportunity to submit new evidence, which the regulator will assess before making a final decision in early November.
If approved, changes could hit customers’ bills as early as April 2014.
“We will review Ofwat’s draft proposals, and submit our response in due course,” said Thames Water in a statement.
A spokesperson told City A.M. that this would be within a week.
The Macquarie Group-backed water supplier claimed it needed to increase bills to cover a rise in bad debt, increased government charges, costs associated with the 2011 transfer of private sewers to company ownership and land deals linked to the Thames Tideway Tunnel.
The firm posted pre-tax profits of £145m last year.
Meanwhile chief executive Martin Baggs was awarded a £418,359 bonus this year on top of his £425,000 salary.
Ofwat resets price limits for each water company every five years, most recently in 2009.
Ofwat’s decision to reject Thames Water’s proposed price hike comes at a time when utility costs are at the centre of a political furore.
Last month Labour leader Ed Miliband pledged to freeze energy bills until 2017 if elected, which has been welcomed by consumer rights campaigners but condemned by business groups who say it will deter investment into energy networks.
Last week, so-called big six energy supplier SSE announced an 8.2 per cent increase in electricity and gas prices from 15 November, with more energy firms expected to follow suit.
Macquarie Group declined to comment yesterday.