Thames top team denies bills will rise

The newly-installed leadership team at Thames Water has promised a parliamentary committee that customers will not face higher bills due to the company’s financial troubles.

Following Thames’ recent financial turbulence and speculation around the future of the company, the newly appointed chair and interim chief executives were called to appear before the environment, food and rural affairs committee on Wednesday (12 July). They were followed by the chief executive and chair of Ofwat and the water minister.

The Thames leadership repeatedly stressed that the company was nowhere near triggering an entry into the special administration regime, either through insolvency or serious performance failures.

Interim co-chief executive Cathryn Ross also reassured MPs that there is no mechanism in the current price control to allow Thames to put up bills to cover financial difficulties. This was echoed by Ofwat chief executive David Black, who said Thames would be allowed the costs of running a company efficiently at the upcoming price review and this alone would be the basis for setting bills.

The trio were quizzed on recent and current events at the country’s largest water company including the sudden departure of Sarah Bentley as chief executive last month. New chair Adrian Montague, who replaced Ian Marchant on Monday (10 July), described Bentley’s resignation as a surprise.

“The burdens of office were quite considerable,” Montague said. “It was an entirely personal decision.”

Ross and fellow interim boss Alistair Cochran gave assurances that investors were providing ongoing financial support in this and the next asset management periods (AMP7 and AMP8), with £750 million confirmed this week for the next two years and an additional £2.5 billion expected to be injected between 2025 and 2030. This is on top of the £500 million already provided by shareholders in March.

Asked why this amount had fallen short of the £1.5 billion originally pledged by investors for AMP7, Cochran, who is also the company’s chief financial officer, pointed out that the projections for AMP8 investment made this “a bigger commitment in aggregate”. Practical issues around deliverability mean Thames would not be able to efficiently spend all that cash by 2025 if it had received the full £1.5 billion previously indicated.

Ross described the change in the company’s internal culture over the past few years under Bentley’s leadership as an indication towards improved performance.

“Bad news travelled upwards too slowly, people were afraid to say how bad things were on the ground. We have turned around that culture.”

Committee members, along with guest MP Darren Jones, continually raised the behaviour of Macquarie during its period investing in Thames from 2006 to 2017. Montague countered that this was “relatively ancient history”.

He explained “for us, that was a long time ago and it reflects the state of the market at the time.”

While repeatedly reassuring the committee that Thames would not need to be nationalised, Ross said it was perfectly legitimate to debate ownership structures in the water sector.

She added: “Our job is to keep taps flowing and loos flushing. Whatever the ownership model is we will keep doing that job.”

Another persistent point of questioning was the movement of staff between regulators and the water companies they monitor.

Jones was particularly angry at Ross’ former role as chief executive at Ofwat and her overseeing of Thames at a time when it was being debt-loaded by Macquarie.

When pressed by Jones to apologise for her time as chief executive of Ofwat for signing off on business plans in 2014, Ross refused to accept she or regulator colleagues had acted in anything other than customer interest. She reminded the committee that during her tenure the prevailing wisdom was that capital structures were the responsibility of an organisation not of the regulator. This position, Ross pointed out, had subsequently changed and greater interest is now paid by Ofwat to the financial structures and resilience of all water companies.

In her session, water minister Rebecca Pow said bills would be subject to inflationary increases: “Rises to bills will come out in the wash once Ofwat go through business plans for companies.” She added that funding would need to go up to meet the expectations of government and public for huge investment in the future.

However, she said Defra was “always mindful of the effect on consumers” and considerations on impacts to householders would be taken.

Pow defended the use of debt and equity as tools to build crucial infrastructure as fast as it is required without bill influxes.