Water companies plan to hold prices for 2015-2020

Photo courtesy of Thames Water shows Lee Tunnel boring machinee

All the water companies with the exception of Thames Water are planning to either freeze or reduce prices in real terms in their business plans released today (2 December). The exception is Thames Water who are proposing a 11% price hike (£40 increase) to cover investment in the Thames Tideway Tunnel. 

The draft business plans submitted by the water companies to Ofwat cover the next regulatory period 2015 to 2020.

The average water bill is currently about £388. Southern Water, for example is proposing to cut bills by £6 over the next five years. But customers are unlikely to notice the reduction as over the same period bills will increase by £78 to cover anticipated inflation. This is the crutch of the problem for water companies, how to justify this increase at a time when most customer's income are not increasing by the rate of inflation.

Partly its about clear communication. Here the water companies have a lot to learn. Southern Water in justifying the increase says: "1% of your bill will go towards ensuring your bill remains affordable. While Monty Python fans would be delighted by this logic,  most customers will fail to understand how increasing bills by 1% makes them more affordable?

The summary is no clearer. It says: "under this plan, average bills will rise by less than (0.6 per cent) the rate of inflation from 2015 to 2020".  Why not simply say average bills will decrease by £6 from £438 to £432 over the next five year period before inflation is added. 

When its appreciated, for example, that the average age of the water mains is over 100 years then it starts to become more understandable that the current rate of water mains renewal is inadequate and hence that investment (and consequently bills) will need to increase.

With a backdrop of increasing customer mistrust of water companies its absolutely vital for all those who care about the industry that the reasons why investment must continue are clearly explained.