Who should pay, and what are they paying for?

The Utility Week news team set the national agenda this summer with two scoops raising the eternal question: who should pay for what? First up was our prediction that Thames Water would ask for a mid-term price rise. Several days later, the country's largest water company braved media and consumer outrage with a request that equates to a £29 one-off charge per customer. Sir Humphrey Appleby might have termed Thames' bid a "brave decision", given that the regulator has already made its feelings about profits and price rises clear, and the company's reputation has recently taken a battering for its dividend payments and tax bill (or lack thereof). Ofwat has until November to make a ruling, meaning the decision will fall to incoming chief executive Cathryn Ross - who is unlikely to want to begin her tenure by approving a hugely unpopular price hike. While most of the extra costs Thames has highlighted in its bid relate to land acquisition for the Thames Tideway Tunnel, a significant chunk arises from bad debt and the adoption of private sewers. These same challenges face other water companies, none of whom are yet asking for extra cash. Moreover, Thames is asking Ofwat to tear up the rules by allowing it to roll forward the recovery of AMP5 costs into AMP6 to spread the burden on customers. Thames seems wilfully deaf to the messages coming out of Ofwat, but must surely be aware that its chances of getting the full sum approved are slim to negligible.

So what’s it up to? No doubt the company is taking an old fashioned negotiating stance and asking for more than it wants, or would accept. It probably relishes the prospect of a referral to the Competition Commission, which might be more sympathetic to special pleading than Ofwat in the current climate. Thames also has to reassure its investors that it will be able to recoup the massive costs of the Tideway Tunnel as they are incurred, and in so doing, protect its credit rating. It is effectively spreading these costs three ways – the AMP6 settlement (and later price reviews), the proposed AMP5 recovery, and the specific levy that will hit customers later in the process. Thames risks the ire of the regulator – but it’s playing a long game.

Meanwhile, a Utility Week Freedom of Information request revealed that the government has spent more than £16 million to date on the Green Deal. The single household that has so far had work completed could have its cavity walls filled with gold for that!

On a more serious note, the Department of Energy and Climate Change (Decc) says it has no current plans for further marketing spend on the programme. It seems the energy industry has been handed responsibility for the Green Deal without the public sector support that should accompany a so-called flagship initiative. It’s tempting to conclude that Decc has already realised that the Green Deal is going to fall far short of its ambitions and is quietly distancing itself, limiting any further reputational damage or financial hit.

Ellen Bennett

This article first appeared in Utility Week’s print edition of 30th August July 2013.

Get Utility Week’s expert news and comment – unique and indispensible – direct to your desk. Sign up for a trial subscription here: http://bit.ly/zzxQxx