Water firms warn Ofwat's low prices will prompt climate investment drought

Water companies have today voiced concerns that the price limits imposed by industry regulator Ofwat will prevent them from making the necessary investment in new infrastructure to protect UK water supplies from the effects of climate change.

Ofwat's decision means that average water and sewerage bills will remain roughly at 2009 levels until 2015, despite protests from water firms that they will need to raise bills to cover the cost of investments in new reservoirs, efficiency measures and pipes.

The ruling also fixes the amount water companies must invest in improving infrastructure over the next five years at around £22bn, including £12.9bn to maintain and improve infrastructure, such as pipes and treatment works, and £4.6bn on improving drinking water and the environment.

"[This money] will ensure that this crucially important infrastructure will continue to support safe, secure services to customers," Ofwat said in its ruling. "It will also continue to address new environmental, security and drinking water standards."

But prices were fixed significantly lower than the amount demanded in water companies' final business plans, which proposed an average increase in bills of nine per cent, around £31 per household, by 2015.

Pamela Taylor, chief executive of industry body Water UK, claimed that there was a real risk that infrastructure could suffer as a result of the price restrictions. "It is quite possible that companies will have to adjust or stop their leakage programmes," she warned.

Water firms have also warned that, with climate change likely to lead to increased flood risks and more frequent droughts, particularly in the south of the country, they will be required to undertake an unprecedented level of investment in the coming decades to maintain supplies through new reservoirs and infrastructure.

Ofwat defended its decision, saying that it had compromised on an original plan to cut bills by a larger margin of £14 per household. The regulator said that it had put water consumers at the heart of its decision, and taken all necessary investments into account when making its pricing ruling.

"We have included nearly all the statutory proposals to improve the environment and water quality, [and] we have included additional risk mitigating mechanisms for bad debt and Environment Agency charges," the regulator said in a statement.

In addition, Ofwat's ruling will force water firms to undertake compulsory initiatives to help customers waste less water, including retrofitting thousands of homes with more efficient water systems and increasing the proportion of household customers with a meter from 37 per cent to 50 per cent by 2015. In regions that the Environment Agency has classified as seriously water stressed, the proportion will rise to about 57 per cent by the same date.

Jacob Tompkins, managing director of water efficiency charity Waterwise, welcomed the move but called for metering proposals to go further.

"All stakeholders now agree that metering is the fairest way to pay for water, and it cuts water use by 10 per cent, so we would still like to see a meter in every home by 2020, supported by measures to protect vulnerable groups, " he said.