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Preliminary estimate of +12% with significant variation between companies
With the “Draft Determinations” now published by Ofwat, I wanted to give an initial guesstimate of where Wholesale charges are likely to move in April 2025, as I know many of you need to take this into account in business planning.
Unfortunately, the heightened focus on sewage and pollution will lead to a higher expenditure required by water companies, which will of course increase bills. Added to this, the problems and uncertainty surrounding the financing of a number of water companies, including Thames Water, are affecting the cost of capital for all water companies, which has an inflationary effect on customer charges.
The Draft Determination is of course just Draft, and there is more uncertainty at this point in the year than normal, given the level of possible variation between the Draft and Final Determinations. There are also company-specific variations in how the Determination is translated into tariffs, and in adjustments including ODIs (incentives/fines), and other allowances.
My own very preliminary estimate is an average increase in tariffs in April 2025 across England of 12%. The range of increases is going to have significant variation between individual companies, and between water and sewerage charges. Outliers are:
- Southern: higher than others, at 30% average, with water charges significantly higher than sewerage
- South East and SES: lower than average (these are both water-only), with South East at c. 4% and SES flat on the current year.
I expect Thames Water’s increases to be higher than average for the sector at c. 18%, although there is more uncertainty around the Thames outcome than for any other company, with the Draft Determination incomplete on key areas (which is very unusual). The Thames charges for water may increase by c.2% more than for sewerage.
I would note that:
- this does not take into account a variation in ODIs (incentives/”fines” which increase or reduce charges)
- this does not adjust for historic over/under recovery, i.e. the impact of errors in current tariffs relating to the original forecast of consumption on which tariffs are based
- there is still scope for some changes both for individual companies and in the overall Ofwat methodology, and in particular for Thames
A number of water companies are rumbling about appeals to the CMA. Any company which appeals will nevertheless raise tariffs on 1 April in line with the Final Determination pending the outcome of an appeal. The Final Determination is scheduled for 19 December, but may well be pushed back by about 1 month to mid January. If you have any questions about this, please feel free to contact me at ceo@castlewater.co.uk
