(Bloomberg) -- Water bills are set to rise by 36% in England and Wales over the next five years, piling pressure on households already feeling pinched by higher prices.
Industry regulator Ofwat on Thursday announced details of the hike as part of its ruling on investment plans for utilities including debt-saddled Thames Water. The average bill will increase £157 ($198) over the full five-year period, with more than half of that amount occurring in the first year.
Read: Returns for Thames Water Set Below Level Needed to Finance Plan
The bill increase set by Ofwat is just shy of the average 40% water companies had sought. The firms and the government both say higher bills are necessary to fund an infrastructure upgrade, following a groundswell of public ire over chronic leaks and sewage spills.
The announcement comes as households already face rising inflation and the possibility of a third-straight increase in the energy price cap in April.
“These bill rises may be less than what water companies wanted but they are still more than what many people can afford,” Mike Keil, chief executive of the Consumer Council for Water, said in a statement. “Customers will be hit particularly hard from April with a large chunk of these increases frontloaded into next year — on top of inflation.”
Ofwat said it will allow companies to invest as much as £104 billion on upgrades over the five-year period, funded primarily by the bill increase. The ruling, covering the 2025-2030 period, ends months of speculation about how utilities will fund their biggest investment programs since privatization.
Companies and their investors will now need time to read through the hundreds of pages produced by Ofwat, to determine if the allowed returns will enable them to meet their performance targets.
“Water companies now need to rise to this challenge, customers will rightly expect them to show they can deliver significant improvement over time to justify the increase in bills,” Ofwat Chief Executive David Black said in a statement. “We will monitor and hold companies to account on their investment programs and improvements.”
Thames Crisis
The bill rises announced Thursday are significantly higher than Ofwat’s draft determination in July. That’s partially because new regulations on drinking water quality and pollution were introduced during the review process. The cost of raising debt has also increased across the industry in recent months as a result of the financial crisis at Thames, Britain’s biggest water utility.
Thames was seeking a bill increase of more than 50% from the 2024-2025 period, while another embattled utility, Southern Water Ltd., sought a hike of more than 80%. In the end, Ofwat approved 35% for Thames and 53% for Southern.
Thousands of Southern customers this week have faced outages or low water pressure due to a technical issue at a supply facility. The company said customers will start to be reconnected later Thursday.
Companies can appeal Ofwat’s final determination to the UK’s Competition and Markets Authority, though the process could take as long as a year and cost millions of pounds, without no guarantees of a ruling in favor of the companies.
Meanwhile, Parliament’s Environment, Food and Rural Affairs Committee on Thursday announced a new long-term inquiry on reforming the water sector following criticism over the industry’s environmental performance and financial issues. It plans to hold the first evidence session in January, taking into account Ofwat’s final determination numbers.
(Updates with impact on bills in second paragraph, Southern Water outage in 11th.)
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