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Ofwat rejects company's request to raise its prices
Ofwat has provisionally decided not to allow Sutton and East Surrey Water to raise its prices by an average of 10.2% before inflation in 2009-2010.
The application would have resulted in more than 250,000 consumers having a significant increase in their water bills. Ofwat's draft decision means the prices the company can charge will remain unchanged.
Regina Finn, Ofwat Chief Executive, said:
"It's Ofwat's job to make sure that customers get a fair deal from monopoly water companies. The onus was on the company to convince us that higher bills were necessary.
"That's why, after carefully scrutinising the application, we have provisionally rejected the request to increase prices.
"We are confident that Sutton and East Surrey Water have the necessary finance in place to provide the quality of service customers expect."
Sutton and East Surrey applied to increase prices due to increased energy costs and a claimed substantial and unforeseen shortfall in revenue. They stated the shortfall came as a consequence of water restrictions due to a drought in 2006 and heavy rainfall in 2007.
Ofwat is not convinced that these circumstances threaten the ability of Sutton and East Surrey to finance its functions up until 2010 when Ofwat will set prices for a further five years. Ofwat also concluded that a significant proportion of Sutton and East Surrey's additional power costs could have been avoided through prudent management.
There will be a consultation period until 26 November 2008 for customers and the company. Ofwat will announce the final decision in December 2008.
For more details about the decision visit http://www.ofwat.gov.uk
Notes to Editors:
1. The Water Services Regulation Authority (Ofwat) is the economic regulator of water and sewerage companies in England and Wales. It exercises its powers in a way that it judges will protect the interests of consumers, promote value and safeguard future water and sewerage services by allowing efficient companies to carry out their functions properly, and finance them.
2. Sutton and East Surrey Water is a water-only supplier, providing water to parts of Surrey, Sussex, Kent and the London boroughs of Merton, Sutton and Croydon. It supplies 257,000 domestic properties and around 19,000 non-domestic properties.
3. Price limits are set using the formula RPI+/-K, where K is the number by which the company can change its charges to customers above - or below - the level of inflation.
4. Price limits were set in December 2004 for all the water and sewerage companies in England and Wales for the period 2005-10. They came into effect from April 2005. Copies of Final Determinations: Future water and sewerage charges 2005-10 are available here.
Price limits % 2009-10
Following 2004 price review -1.1
Sutton and East Surrey's proposal 10.2
5. Condition B of their licences allows water companies to ask Ofwat to review its price limits if it believes that an unforeseen circumstance is having a substantial effect on its financial position. For Ofwat to consider the request the company must show that the:
a) Net present value of the losses calculated over 15 years exceeds 20 per cent of turnover of the appointed business; and
b) Losses could not have been avoided by prudent management action.
Ofwat will take account of the net effect of the unforeseen circumstance.
6. In August the company published its draft business plan. In this it proposes price limits for each year 2010 to 2015. These proposals may need revisiting in the light of the outcome of this application.
7. Media enquiries to Ofwat Press Office: contact Steph Beeby on 0121 625 3662/1442
Email: pressofficeteam@ofwat.gsi.gov.uk
