Debt-laden Thames Water faces a scramble to find further funds as it fights to avoid a government-handled administration, after plans to charge customers £157m to repair a hole in its pension scheme were rejected.
The water company, which has said it could run out of cash by next June, had asked the regulator for permission to charge customers £156.6m through bills to plug the pension shortfall.
Ofwat provisionally rejected this plan and said the responsibility for paying the deficit should “fall wholly to management and shareholders to deal with”.
Thames Water, which has debts of £15.2bn, has faced sustained criticism over sewage dumps, leaky pipes and extracted dividends. The pension issue presents its management team with an extra headache, as they face the challenge of raising cash to fund its investment plans while in Ofwat-supervised special measures after a breach of its licence.
Earlier this year, its existing shareholders U-turned on £500m of pledged emergency investment and said Ofwat had been too stringent, making the company “uninvestable”. That left its managers, led by chief executive Chris Weston, scrambling to keep Britain’s biggest water company afloat.
If Thames cannot find fresh funds, it risks falling into a special administration process handled by government, effectively nationalising the UK’s largest water company, which has 16 million customers in London and the Thames Valley.
Thames made the £156.6m request in its business plan submitted to Ofwat’s 2024 price review. Under the review, water companies ask Ofwat how much they can charge customers over the next five years to fund operations and investments. Thames requested nearly £22bn and was permitted £16.9bn, in a plan that Ofwat labelled “inadequate”.
In its provisional response last month, the regulator said Thames had submitted the pension proposals “without providing sufficient and convincing evidence that it is appropriate for customers to pay these costs”.
It added that Thames had been blocked from funding pension deficits with customer money since 2023 and that it knew that financial responsibility had fallen on management and its owners since the 2009 price review (PR09), which covered 2010 to 2015.
The water company’s annual report, published last month, said a triennial review designed to value the Thames Water Pension Scheme (TWPS) in 2022 was “significantly overdue” and had not yet concluded. The defined benefit scheme, worth more than £1bn, closed to new members in 2021 and has a deficit of £152m.
In 2019, Thames – which has more than 8,000 employees – set a goal of eliminating the deficit by 2027. A separate defined benefit scheme, the £523m Thames Water Mirror Image Pension Scheme, is in surplus by £33m.
A spokesperson for Thames Water said: “Constructive dialogue is taking place between the trustees, company and the Pension Regulator to finalise and agree the [TWPS] valuation as soon as possible. All contributions on all pension schemes due have been made and are up to date.”
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Thames’ former owner, a consortium led by the infrastructure investor Macquarie, has faced significant criticism over its current state. Its current ultimate shareholders, which include the Canadian pension fund Omers and the British university staff pension scheme USS, have cut the value of their investments and said they do not intend to inject more money.
“As Thames Water is seeking to recover costs from customers which have been clearly the responsibility of the company and its shareholders since PR09, we consider the company has not met out minimum expectations,” Ofwat said.
Barring a U-turn when Ofwat publishes its final view in December, Thames may now have to find the funds from its own cash reserves or from shareholders.
Cliff Roney, a retired Thames Water lifer and representative of the GMB union, said: “It is disgusting that they are pleading poverty and having to go cap in hand to Ofwat and ask for customers to pay for this deficit. I am livid that it has come to this.”
In June, the Guardian revealed that Thames’ board approved a £150m dividend hours before the investors’ £500m U-turn and that Ofwat was examining the payout. The company said that the dividend was in part to “settle a pension top-up payment”.
