Thames Water says current regulatory arrangements make AMP8 business plan “uninvestible” as shareholders refuse to provide additional funding

Thames Water, the UK’s largest water company,  says that based on the feedback provided by Ofwat to Thames Water to date, the regulatory arrangements that would be expected to apply to Thames Water in AMP8 make its PR24 plan uninvestible.

The water company issued a statement at 7.00am this morning following widespread media speculation yesterday and a report by Sky News yesterday evening at 22.36pm that Thames was expected to announce today that its shareholders are “not minded to proceed with a promised £3.25bn investment to keep it afloat.”

In July 2023 Thames Water announced that its shareholders had agreed to provide a further £750 million in new equity funding across the current regulatory period (AMP7), the first £500 million tranche of which was anticipated by 31 March 2024.

This funding was subject to satisfaction of certain conditions, including the preparation of a business plan that underpins a more focused turnaround that delivers targeted performance improvements for customers, the environment and other stakeholders over the next three years and is supported by appropriate regulatory arrangements.

The statement says:

“Based on the feedback provided by Ofwat to Thames Water to date, the regulatory arrangements that would be expected to apply to Thames Water in AMP8 make the PR24 plan uninvestible.

“As a result, the conditions of the support letter from July 2023 have not been satisfied and the first £500 million of the new equity that had been anticipated will not be provided by Thames Water’s shareholders by 31 March 2024.”

Discussions with Ofwat and other stakeholders are currently ongoing., with Thames Water saying it is aiming to secure a PR24 regulatory determination that is “affordable for customers, deliverable and financeable for Thames Water, as well as investible for equity investors.”

The water company said it intends to pursue all options to secure the required equity investment from new or existing shareholders on receipt of Ofwat’s draft PR24 determination which is expected in May/June 2024.

As at 29 February 2024, Thames Water had liquidity of £2.4 billion of cash and available committed facilities

Commenting on the announcement, Chris Weston, CEO of Thames Water who joined the company in December 2023, said:

‘I’d like to reassure our customers that, despite this announcement, it is business as usual for Thames Water. Our 8,000 staff remain committed to working with our partners in the supply chain to provide our services for the benefit of our customers, communities and the environment.’

Ofwat: “Safeguards in place to ensure services are protected regardless of issues faced by shareholders”

In response to the announcement by Thames Water, an Ofwat spokesperson said:

“Safeguards are in place to ensure that services to customers are protected regardless of issues faced by shareholders of Thames Water.

“Today’s update from Thames Water means the company must now pursue all options to seek further equity for the business to turn around the performance of the company for customers. Thames Water is a business with a regulatory capital value of £19 billion, with £2.4 billion of cash/liquidity available, and an annual regulated revenue of £2billon and new leadership team.

“Ofwat’s PR24 price control will put customer and environmental priorities at the heart of the water sector. In order to drive this change, we need to ensure that the sector attracts investment and is fair to bill payers. Since 2020 nearly £4.6 billion new equity has been injected into the sector. We will set out our draft determinations in June this year.

“We also need to see companies deliver the performance that customers expect and that they are run in a way that meets customers’ expectations.”