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Thames Water has warned its ageing assets “pose a risk to public safety, water supplies and the environment” in a report that lays bare the scale of the challenge facing Britain’s largest water company, which is at risk of financial collapse.
The regional monopoly, which provides crucial water and sewerage services to London and surrounding areas, warned that it has around £19 billion of assets that are in “poor” or “failing condition” or “no longer capable of performing their functions.” reliably”.
According to the company’s report, problems range from crumbling sewer and water lines to outdated control technology and a shortage of reservoirs.
Dangers arising from years of underinvestment include the risk of “rapid flooding” at 37,545 basement homes in London because “they are close to main water pipes, which are increasingly bursting”.
There are also risks from Cryptosporidium oocysts, a parasite in drinking water that can cause diarrhoea, as London’s four major water treatment plants are due for upgrades.
Forty-three incidents of cryptosporidium in water have been detected since 2018, the report said, and the Drinking Water Inspectorate has expressed its concerns.
The warning is part of the business plan for the next five-year regulatory cycle submitted by Thames Water to Ofwat, the watchdog, as the company tries to avoid financial collapse and temporary nationalisation.
Thames Water’s proposals include a 59 per cent increase in household bills. Ofwat will make a draft decision on the utility’s business plan on July 11, less than a week after Britain goes to the polls for a general election.
Politicians of all stripes have spoken out against water companies, which have sparked public outrage after pollution and leaks. But Thames Water, struggling with £18bn debt, is under scrutiny. Labour, widely predicted to win the election, has said it is not in favor of nationalizing Thames Water but wants a stricter regulatory regime.
Thames Water, which serves around 16 million homes, has plans to increase energy bills, taking the cost from around £471 a year now to £749 by 2029-30, assuming 2 per cent inflation.
The utility hopes this, together with a new ‘recovery regime’ which imposes limits on fines, will allow it to raise debt and equity later this year to continue operating and make improvements.
It has said it has enough cash to last until May 2025. Its largest investor, Canadian pension fund Omers, has written down its stake to zero and shareholders have said the current regulatory regime makes Thames Water “uninvestable”.
Because most of the company’s infrastructure was installed 34 years ago before privatization, the need for expensive repairs to poorly maintained assets is eating up an increasing share of the budget, leaving no money for improvements, the report said.
Thames Water has said it needs to spend £19 billion over the five years to 2030, which would help the country double its capital spending from £6 billion in the current five-year period to £12 billion, of which £1.9 billion would go on upgrading existing assets.
Thames Water’s report shows that the company is keen to ‘break the cycle of sweating assets’, but that Ofwat has historically underestimated ‘operational risks’ and the level of capital maintenance required.
Ofwat declined to comment on the report.
The report states that Thames Water’s current annual replacement rate for sewers is 0.2 per cent, meaning it will take 500 years to replace the sewerage system, while the replacement rate for water pipes is 0.6 per cent and would take 167 years.
Thames Water said in a statement that it had already started upgrading its largest water treatment plant in London and that “since 2010, more than 99.95 percent of tests taken from customers’ taps have met the standard set by the British legislation required”.
Bursts from rising pipes — which pump wastewater through sewer pipes to wastewater treatment plants — have increased by 70 percent over the past seven years, in part because infrastructure installed in the second half of the 20th century has now “reached the end of its estimated useful life,” the report said.
The last major improvement program was carried out between 2006 and 2008 and since then investment in renovation and replacement has lagged behind the pace at which it was carried out, the report said.