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If OFWAT refuses price increases, why not OFGEM too?

OFWAT has just turned down as “unjustified” an 8% hike in customer bills proposed by Thames Water, the biggest UK water company. So shouldn’t OFGEM take a leaf out of OFWAT’s book in dealing with proposed energy price hikes? The same profiteering has appeared in the water industry, with huge sums being set aside for dividends and fancy remuneration packages for senior managers, but too little for long-term investment.

But OFWAT has hit back with plans to cut bills by 13% by the end of the decade. Thames Water is currently trying to add £29 to the water bills of its 14 million customers in London and the South-East, on the grounds that they should contribute to the cost of the planned Thames tideway ‘super-sewer’ in London, plus also pay for higher Environment Agency charges and recompense the privatised water company for the recent spike in unpaid water bills. The price rise that Thames Water are demanding would hoist bills to nearly £400 a year by 2015.

OFWAT did the right thing and contested Thames’ demand. Their draft decision was that: “We have looked at the details and do not believe the current evidence justifies an increase in bills”. OFWAT has rightly gone even further. Last month the regulator accused Thames Water of under-spending on sewer flood defences and not maintaining its waste-water network. I should add that I have had the same experience in the North-West with United Utilities water company which has for years grossly under-spent on infrastructure to prevent foul water overflows.

Yet Thames Water is the only one of the 19 regulated water companies to seek a supplementary charge and even before the current super-sewer episode it sought such a charge to raise bills by 19% in 2009. The company was knocked back by the regulator which only allowed 3%.What makes Thames Water’s position so egregiously greedy is that they paid no corporation tax in the last financial year when it made £550m in operating profits and was actually given a £5m tax credit from the Treasury.

If OFWAT can deal vigorously with such greed, why can’t OFGEM? The latter has undertaken up to 20 ‘reviews’, but has never fully uncovered the opaque miasma between wholesale and retail pricing which is where most of the conspiracy against the consumer interest occurs. Now the evidence is finally coming out that for some if not all of the Big 6 energy companies their wholesale electricity costs have been falling over the last 3 years, yet that didn’t stop them putting up their prices for tens of millions of households. So why doesn’t OFGEM follow the OFWAT example and refuse to sanction proposed energy price increases unless the companies fully provide the systematic evidence which justifies the increase?

One Comment

  1. Jon Williams says:

    The reason why OFGEM hasn’t is something called “revolving door syndrome” between Government and Energy companies. It seems workers have worked at both and seamlessly move from one to the other!?

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