Millions of households in England and Wales are paying too much for their water supply because of poor oversight by Ofwat, says a committee of MPs. A report from the Public Accounts Committee (PAC) said the regulator consistently overestimated water companies’ costs. It said many householders would be “appalled” to learn their water bills could have been smaller.
Ofwat said it would “carefully consider” the PAC’s report.
Household water bills averaged just under £400 per year last year.
The committee of MPs said Ofwat regularly overestimated companies’ financing and tax costs when setting price caps.
The PAC said this meant the companies had made windfall gains of at least £1.2bn between them.
It is asking Ofwat to review the way it assesses companies’ cost of debt and tax and report back on how it intends to improve.
The MPs also said they were worried about customers in areas where water was scarce paying to develop new capacity, despite the possibility that water trading between companies would be brought in in the future.
Ofwat came into being to oversee the 18 privately owned companies that supply separate areas with water and sewerage services after the service was privatised in 1989.
They currently operate as local monopolies but the government has announced plans to free the market for limited competition between suppliers by the end of this parliament in 2020.
The choice will involve services such as billing and customer services, but not the water supply itself.
In Scotland, business customers can already choose such suppliers.
PAC chairwoman Meg Hillier said: “Ofwat was set up to protect the interests of customers, most of whom have no choice over who supplies their water yet must pay bills typically running to hundreds of pounds.
“Many householders will therefore be appalled to learn these bills could have been smaller had Ofwat adopted a different approach to setting price limits for water companies.
“This approach must be reviewed as a priority.”
Ofwat chief executive Cathryn Ross said: “Holding companies to account and protecting customers is at the heart of what we do.
“That’s why we’ve made sure bills will fall by 5% by 2020. We will carefully consider the thoughts of the PAC.”
She added: “If companies don’t step up – we’ll step in.”
Consumer Council for Water chief executive Tony Smith said the PAC findings “echo the concerns we have repeatedly raised with Ofwat that it has been too generous to water companies in past price settlements, to the detriment of water customers.”
The consumer group added that Ofwat “needs to… deliver a fair balance between company shareholders and customers”.