Ofwat mulls Tideway licence change

Ofwat has begun a consultation to increase the proportion of costs borne by customers of the Thames Tideway from 60 per cent to 85 per cent for extra expenditure incurred because of the pandemic.

The consultation relates to c£200 million of extra costs. At present the licence directs the company will pay 40 per cent.

An extension to the final completion date is also being considered in light of delays to the project.

The water regulator provisionally agreed to alter the cost sharing arrangements between Tideway and billpayers for the period mid-March 2020 to 24 July 2020.

Ofwat was satisfied that extra costs incurred by the project relating to the pandemic were differentiated from other expenditures and that Tideway had acted appropriately to protect its supply chain.

With the altered ratio of costs Ofwat calculated customer bill impacts will remain within the original £20-25 range in 2014-15 prices.

A delay to the project of six months is estimated as a result of Covid-19, which if Ofwat accepts is solely due to the pandemic it would necessitate another licence amendment to change the regulatory milestone dates. Tideway needs to prove that delays are only due to Covid-19 with no other influences before Ofwat would extend the planned system acceptance date, which is currently 28 February 2027. Tideway would incur a penalty for not delivering the project by the set date without such an amendment.

Ofwat said it expects all companies to be managing the impact of the pandemic in a way that mitigates costs because the regulatory framework was not designed to insulate companies from all unexpected costs incurred. It has told Tideway that the bar for agreeing alternative sharing rates would be higher beyond the 24 July 2020 date, if it were to agree to further amendments.

All but structurally essential work on Tideway ceased during the first lockdown and social distancing prohibited staff from returning to work at full capacity. Ofwat recognised that costs and delays continued after 25 July 2020 relating to Covid-19 but said these were more difficult to estimate.

In August parent company Bazalgette Ltd said it anticipated extra costs of £233 million and a nine month delay to work.

Tideway, the company delivering the tunnel, is financed by Bazalgette Tunnel Limited, which in turn is owned by a consortium of investors. The cost will be spread across water bills.

The consultation will run until May and any amendments will come into effect in June.