Water bills in Wales are set to rise.
For those with Dŵr Cymru Welsh Water, average bills will be going up by around £27.40 a year, an increase of £137 by 2029-30. Overall average annual bills will rise from £466 currently, to £603 by 2030, a 29% increase.
For customers with Hafren Dyfrdwy, average bills will be going up by around £26.50 a year, an increase of £127.88 by 2029-30. Overall average annual bills will rise from £396 currently, to £524 by 2030, a 32% increase.
This is compared to an England and Wales average of bills increasing by £19 a year.
The news follows Ofwat’s ‘draft determination’ of water company plans for 2025-2030 to futureproof water supplies, protect rivers and waterways from discharges and replace ailing assets. The funds to deliver these ambitions will be partly funded by increases in water and sewerage bills.
This article looks at what goes in to these decisions, and what it means for customers in Wales.
What is Ofwat?
Ofwat (or the Water Services Regulation Authority) is the economic regulator for water companies in Wales and England. It operates independently of industry and the UK and Welsh governments, but within a policy framework set by UK and Welsh Ministers.
Its main duties are to ensure good quality services are provided to customers, and that water companies have the finances in place to deliver their services. It also encourages competition where this benefits consumers. Its primary duties are set out in the Water Industry Act 1991 (as amended by the Water Act 2003). Ofwat’s additional duties include contributing towards sustainable development and promoting efficiency.
Ofwat’s priorities for Wales
The Welsh Ministers set out strategic priorities and objectives for Ofwat to follow in carrying out its duties relating to companies operating ‘wholly or mainly’ in Wales. The Welsh Government published its Strategic Policy Statement (SPS) in July 2022, which set out five key priorities on which Ofwat is expected to challenge or encourage water companies to deliver:
- climate and nature emergencies;
- environment;
- resilience;
- asset health; and
- customers and communities.
Setting future charges
Every five years water companies set out their plans for how much they’ll charge customers, and what they’ll deliver in the next ‘Asset Management Plan’ (AMP) period, through the price review process.
The majority of water companies operate as monopolies, meaning that most consumers have no choice of provider. Ofwat therefore sets price limits that each individual company can charge and sets minimum expectations for performance for customers and the environment. It does this by scrutinising water companies’ business plans, and balancing the need for affordable water and sewerage services with the investment the companies need to make, to maintain and improve infrastructure and meet environmental standards.
Water companies were required to submit a Price Review 2024 (PR24) business plan to Ofwat in October 2023. These provide details of what each company plans to achieve in ‘AMP8’, or 2025-2030, and how they will raise the funds to deliver the changes. Companies are expected to ensure they can finance their planned expenditure by attracting private sector investment, and by raising funds through customers’ bills.
Dŵr Cymru’s planned investment, performance and bills
Key proposals in Dŵr Cymru’s draft PR24 business plan (found in the Executive Summary) are:
- £3.5 billion capital investment programme;
- £1.9 billion of wastewater investment to protect the environment;
- Return to 4-star Environmental Performance Assessment;
- Investment to prevent 186 priority Storm Overflows causing harm to the environment;
- Pollution incidents to be cut by more than 13% from 78 to 68 per annum*;
- 10% reduction in leakage*;
- Tap water quality contacts to be cut by 43%*;
- Average bills to increase by 26%*; and
- Social tariffs to be extended for eligible customers on low incomes.
* From 2025 forecast
At the time of the draft plan’s publication it was reported that, if approved, customers’ bills could go up by £120 a year. In response to requests from regulators for clarification, parts of the plan have been changed since the original submission. This resulted in Dŵr Cymru’s planned total expenditure increasing to £5,627m (up from £5,101m), and an increase in the planned average annual customer bills to £602 by 2030 (up from £581).
Ofwat determined that Dŵr Cymru is able to deliver its performance commitments and legal obligations for less cost than requested, and has proposed a total expenditure allowance of £5.2 billion over the 2025-30 period, which is 12% lower than the company's draft business plan.
Essentially this draft decision allows Dŵr Cymru to collect £5.2 billion through bills from both households and businesses over the 2025-30 period, which will recover historical expenditure, as well as a portion of the £5.2 billion planned expenditure. Overall, this will increase average household bills by £137 from 2024-25 to 2029-30, and 2030 average annual bills will be slightly higher than those originally proposed by Dŵr Cymru at £603 (compared to £602 proposed).
Hafren Dyfrdwy’s planned investment, performance and bills
Hafren Dyfrdwy’s draft business plan proposes to deliver:
- 10% reduction in leakage;
- 72% fewer supply interruptions;
- 24% properties upgraded to the latest smart meters;
- 15% reduction in emissions from water assets (from 2021/22 baseline); and
- zero serious pollution incidents.
In the areas identified as needing investment, Hafren Dyfrdwy says (main business plan) it ensured that they are “areas that truly matter for our customers, communities and environment in Wales” and that the plans are efficient and deliverable. It says it will be necessary to increase bills to make these investments:
…which will mean the bill going up over the five years to 2030. In that time, the monthly bill will have risen by £12.50 in real terms
Like Dŵr Cymru, Hafren Dyfrdwy has also amended its original business plan in response to the regulator’s request. Ofwat therefore based its determination on a plan with a total expenditure of £256m, a decrease from £259m, but says this change doesn’t result in a change in the planned average annual customer bill, which is £559.71 by 2030.
Ofwat determined that Hafren Dyfrdwy is also able to deliver its performance commitments and legal obligations for less cost than requested, and has proposed a total expenditure allowance of £226m over the 2025-30 period, which is 14% lower than the company's draft business plan.
Ofwat has challenged Hafren Dyfrdwy's costs and the speed that revenue is recovered from customers. The resulting draft decision allows Hafren Dyfrdwy to collect £196m through bills from both households and businesses over the 2025-30 period, meaning that 2030 average annual bills will be lower than those originally proposed at £524 (compared to £564).
What happens next?
Along with other stakeholders, water companies have the opportunity to make representations on the draft decisions.
Ofwat is now consulting on the draft determinations, this will close on 28 August 2024. It will be holding a ‘Your water, your say’ meeting on 24 July to get customers’ and other stakeholders’ views, and answer questions about the draft decisions it’s made on the business plans of both Welsh water companies.
The final determinations will be published on 19 December 2024.
Article by Lorna Scurlock, Senedd Research, Welsh Parliament
