(Bloomberg) -- UK regulators will stick to the original timetable for a key decision on Thames Water’s next big business plan, ruling out a delay that would further squeeze the finances of the troubled utility.
Ofwat had considered giving itself more time beyond a Dec. 19 deadline for its final determinations on the water and sewage company’s plans because of the election earlier this year. But the agency’s board has now decided to go ahead with the original date, said a person familiar with the matter, asking not to be identified discussing confidential information.
The UK’s largest water supplier is running out of money and at risk of going into administration. It’s awaiting a court hearing on Dec. 17 to approve as much as £3 billion ($3.8 billion) in emergency debt funding as part of a restructuring plan that will allow it to continue operating while it tries to find a longer-term solution.
Thames is also urgently seeking a separate £3.25 billion in equity to fix chronic leaks and sewage spills, as well as cope with a growing population and climate change. It’s asked for indicative bids from potential investors by Dec. 5.
The industry association Water UK was also encouraging a delay to Ofwat’s final determination until January in the hope that it would result in a more favorable outcome for the sector.
Ofwat Chief Executive Officer David Black has said the final determination would be more beneficial for companies than a draft decision in July, meaning customer bills will rise higher than expected. That’s partly because new statutory rules from the Environment Agency on tackling sewage spills and the Drinking Water Inspectorate will require as much as £7 billion in new funding. The rising cost of debt means the regulator may need to relent on allowed returns.
Under draft plans previously proposed by Ofwat, equity investors will get a return of 4.8% for the next five-year price control period that starts in April. That could rise to 4.9% in the final determination, according to Citigroup Inc. analysts. However, that’s still well below the 5.7% return that Thames Water said is needed to attract new equity.
Thames Chief Executive Officer Chris Weston has already said he may appeal to the Competition and Markets Authority if the utility is unhappy with Ofwat’s ruling. But that decision would need the backing of its creditors and the process could take as long as a year, with no certainty of success.
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