LONDON, March 10 -- The government of the United Kingdom issued the following news:

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Group hasallowed anexpectedaverage increase of 2.2% in customer bills,nearly halfof which is due to market movements

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Some extra money also granted to improve services, tacklepollutionand secure investment

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83%of increases sought bywatercompaniesrejected-companies have been allowed lessadditionalrevenue than in the group's provisional ruling

Background

A price control sets the amount of revenue companies are allowed to recover through customer bills. In December 2024, Ofwat published the price control for each of the 16 regulated monopoly companies covering the period 2025 to 2030 - a decisionitsaid would lead to average bill increases of£157 (36%) over the5-yearperiod.

Five companies - Anglian Water, Northumbrian Water,South EastWater, Southern Water, and Wessex Water - argued that Ofwat's decision left them unable to meet the regulatory requirements set out for them. Each of these companies chose to exercise its legal right to request a"redetermination"of Ofwat's decision by an independent group of expertsappointed by the Competition and Markets Authority(CMA). The disputing companies serveapproximately14 million peopleand have a combined annual revenue of around£5billion.

This processhastakenplace during a period of extensive debate and proposals for fundamental change for the water sector and how it is regulated.TheIndependent Water Commissionconcluded that the sector "requires fundamental reform on all sides".The UK government response stated that the current system is "failing the environment, customers and investors" and that it "will now act quickly,turning the page on a broken systemwith root and branch reform".

However, thegroupwasrequired by law to undertaketheredeterminations under the current regulatory system, with more fundamental decisions about the water sector necessarily reserved for government. A maximum of 12 months was allowed for this complex process, compared to the 4 years in which Ofwat conducts its price control.

Final decision

Over the last 12 months, thegroup scrutinised extensive evidence from the 5 water companies, Ofwat, and over 50 third parties- including representatives of investors, environmental and consumer groups.

Thegroup has balanced minimising the impact on people's bills with the need for companies to have enough funding. This includes funding to meet their environmental and drinking water quality legal obligations, and for investor returns to reflect the risks involved - so companies can raise the money to deliver better outcomes for current and future customers.

In October,thegroupprovisionally decided to allow 21% - anadditional£556 million in revenue - of the total £2.7 billion the 5 firms requested. This extra fundingwas expected to result in an average increase of 3% in bills for customers of the disputing companies.

Followinga consultation period, thegroup hasnowdecided to allow17% - anadditional£463millionin revenue - of the total £2.7  billion the 5 firms requested. The £93 million reduction from the amounts proposed in the provisional redetermination islargely drivenby market movements impacting financing costs for water companies.This extra funding is expected to result in an average increase of2.2% in bills for customers of the 5 water companies, which is in addition to the24% increase forcustomers of these companiesleviedas part of Ofwat'sprice control.

Water companies' funding requests for new activities and projects beyond the significant increases already allowed by Ofwat havelargely beenrejected. Some exceptions were made where the group found that more spending was needed to deliver benefits to consumers.

Alargeproportion ofadditionalrevenue allowedby the groupreflectsthe highercostoffinancing whichmakesinvestment more costly to securefor water companiescompared to Ofwat's price review.The funding will also enable the water companies tomeet new legal requirements and fund the delivery of critical areas like supply resilience and pollution reduction.

Thefundingis tied todefined outputs and required levels of performanceto protect consumers.Ofwat has rules in place to claw back funding from water companies which fail to deliver on projects,socustomersarenotleftpaying for upgradesthat never happen.

Chair of theindependentgroup Kirstin Baker said:

We'verejectedmost of the billincreaseswater companiesasked forbutallowedlimited extra fundingwherethat's genuinely needed,balancing concerns aboutaffordabilitywiththeneed to secure our watersuppliesand cut pollution.A significantpartof thisextra moneyreflectsmarket movements since Ofwat's decision.

Indicative impact ofthe final redeterminations on annual customer billsusing2022to 2023inflation levels

Water company Average water bills under Ofwat's price review for 2025to 2030 Average water bills requested by the watercompany Average water billsunder CMA'sfinaldecision, including some changes made by Ofwat after its price review

Anglian Water £591 (20% higher than bills for 2024 to 2025) £649(10%increase compared to Ofwat's decision) £602 (2% increase compared to Ofwat's decision)

Northumbrian Water £488 (16% higher than bills for 2024 to 2025) £515 (6% increase compared to Ofwat's decision) No changeoverallfrom Ofwat's decision

South EastWater £274 (18% higher than bills for 2024 to 2025) £322 (18% increase compared to Ofwat's decision) £284 (4% increase compared to Ofwat's decision)

Southern Water £620 (48% higher than bills for 2024 to 2025) £710 (15% increase compared to Ofwat's decision) £641 (3% increase compared to Ofwat's decision)

Wessex Water £594 (17% higher than bills for 2024 to 2025) £642 (8% increase compared to Ofwat's decision) £614 (3% increase compared to Ofwat's decision)

For more information, visit theCMA's case page.

Notes to editors:

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The tablecontainsforecasts of average water bills - actual bills will vary according to factors such as average customer water consumption and company performance. The pricesaren'tadjusted for inflation - theyare based onthe consumer prices index including owneroccupiers'housing costs for 2022to 2023.The underlying data and Ofwat modelling are based on data being presented using average prices for 2022to 2023.

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No change to Northumbrian Water allowances overall-the company hasreceived less funding for day-to-day running costs,but moremoney to meet higher financing costs which offset one another. Additional funding for certain enhancement projectswill be considered through other channels outside of the CMA's redetermination.

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Water bills forSouth EastWater do not include the cost of wastewater services as it is a water-only company.

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The average water bill increases expected under the CMA's final decision include some changes made by Ofwat afteritsprice review.Ofwat compared what water companiesactually didin the final year of the last 5-yearperiodwith what it expected them to do and adjustedfuture revenue allowances. This is known as the"blind year reconciliation" process. Ofwat's changes have thebiggest impact onSouthern Water, where it has also approved further funding as part of the process, adding £6 to the average bill.

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TheCMA has todaysubmittedits full determinations report to Ofwat as well as publishing the summary of its findings. There is now a formal process that Ofwat and Defra need to follow before the full report is published by the CMA on Ofwat's behalf. By law, this process will take a minimum of 2 weeks.

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For media enquiries, please contact the CMA press office on 020 3738 6460 orpress@cma.gov.uk.

Disclaimer: Curated by HT Syndication.