Committee publication · Correspondence · 10 April 2025
Correspondence from Ofwat regarding Thames Water, dated 28 March 2025
From: Environment, Food and Rural Affairs Committee
Inquiry: Reforming the water sector
Summary
Ofwat's letter to the EFRA Committee Chair (28 March 2025) explains the regulator's role in Thames Water's High Court-sanctioned restructuring plan. Ofwat confirms it did not actively oppose the plan, monitored proceedings closely, and made written submissions to protect customer interests. The letter assures the Committee that restructuring costs—including advisory fees, interest, and debt costs beyond benchmarked allowances—will not be borne by customers under PR24 price determinations.
Key findings
- Thames Water's restructuring plan was sanctioned by Mr Justice Leech on 18 February 2025 and upheld by the Court of Appeal on 17 March 2025.
- Ofwat's central concern was cost protection: advisory, interest, and debt fees exceeding benchmarked allowances will not be recovered from customer bills under PR24 final determinations.
- Ofwat did not actively oppose the restructuring plan; it monitored proceedings, made written submissions to clarify its position, and legal representatives attended both High Court and Court of Appeal hearings.
- Finance costs exceeding the base allowed return to investors cannot be recovered through customer bills; cost-sharing arrangements do not apply to financing-related costs.
- Ofwat is monitoring Thames Water's financial position and equity raise process; if special administration occurs, legislation ensures no service disruption and Government seeks to recoup costs through company sale or the new 'shortfall recovery mechanism'.
Tone
FactualTopics
Key actors
Ofwat, Thames Water Utilities Holdings Limited, Alistair Carmichael MP, Mr Justice Leech, Court of Appeal, David Black, Environment, Food and Rural Affairs Committee
Notable line
“Finance costs that exceed this rate of return will not be borne by customers.”
Key Quotes
“The focus of Ofwat's engagement with the Thames Water restructuring process is to ensure that the interests of customers are protected.”
“If a water and sewerage undertaker is having to pay interest and other fees on its debt over and above what is included in the revenue allowed by Ofwat, it cannot recover the costs through customer bills.”
“In circumstances where a regulator determines that it will not oppose a restructuring plan, it is commonplace for it to indicate this in correspondence (as Ofwat did) and a regulator would not usually attend the Court hearing through Counsel unless it actively opposes a plan.”
“Ofwat is closely monitoring the financial position of TWUL and would like to reassure the Committee that it is prepared to act should TWUL enter special administration.”
Source · parliament.uk record ↗