(Bloomberg) -- Thames Water Utilities Ltd. said it will have to raise bills by as much as 59% by the end of the decade, as the heavily indebted utility races to attract investors to stay afloat.
The UK’s biggest water and sewage-services provider also determined that cuts proposed by its regulator will stop it from raising much needed equity, according to a revised five-year business plan released Wednesday.
The scale of the cuts proposed by Ofwat “is not tenable and renders our plan uninvestible,” Thames said in a statement accompanying the release.
UK water companies are in the process of updating the regulator with their business plans, with a final determination due in December. The industry has come under intense public scrutiny for pollution and sewage leaks, while struggling to upgrade aging infrastructure in the face of soaring interest rates.
Thames, which serves a quarter of England including London, desperately needs to find £3.3 billion of equity and is poised to start seeking new investors in the coming weeks before it runs out of money at the end of May.
It initially asked Ofwat for permission to hike customer bills by 40% and invest £22 billion by the end of the decade in order to fix chronic leaks and sewage spills and develop new water supplies.
Last month, Ofwat rejected those plans, saying instead it could only spend £16.8 billion — less than proposed. It also said average bills could only rise by 23%.
Now Thames says it has redone the numbers and needs £900 million more than thought. It also realized customer numbers will be lower than expected, meaning each household would need to pay more. It is projecting an average bill increase in the range of 52%-59% by 2030.
“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,” Chief Executive Officer Chris Weston said in a statement. “It would also prevent the turnaround and recovery of the company.”
Thames also asked Ofwat to raise the allowed return on equity from its proposed 4.8% to allow for better reward to investors. The utility has asked for it to be as high as 5.7%.
The company’s bonds maturing in April 2027 dropped 1.6 cents on the euro to 76.2 cents following the announcement.
Ofwat will consider Thames’ comments over the next three months alongside other organizations, including water companies, customers, environmental and consumer organizations, and investors, a spokesperson for the regulator said.
‘People Will Be Angry’
The Consumer Council for Water, a government-funded organization that seeks to represent the voice of customers in the UK, condemned Thames’ proposal, saying its original plan to hike bills was already unaffordable.
“Many people will be angry at the company’s call for a larger rise,” said Mike Keil, chief executive of CCW. “Customers have already paid a high price through the company’s poor complaints record and service failures and it’s time people were treated fairly.”
While the business plan isn’t expected to start until April 2025, Thames has already agreed to Ofwat’s plan for remedial action to restore its credit rating. That will involve the regulator appointing an independent monitor, who will have access to Thames’s financial information and be able to report back and make recommendations.
Earlier Wednesday, the trade association that represents England and Wales’ water utilities said the industry would struggle to meet ambitious targets to curb sewage spills and leaks if Ofwat imposed deep cuts on their investment plans.
Across the board, water companies had proposed investing £105 billion to 2030, but Ofwat has proposed cutting this by £17 billion in a bid to protect consumers from steep bill rises and ensure that they are getting value for money. Water UK said the cuts put “urgent improvements at risk.”
--With assistance from Abhinav Ramnarayan.
(Updates with additional comments.)
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