British regulator Ofwat took a tough line against water companies on Thursday, saying the firms struggling with a sewage and funding crisis could make environmental improvements without raising bills by as much as they had wanted.
The trade-off between price hikes and private investment is a first test for the country's new Labour government, at a time when the biggest supplier, Thames Water, teeters on the brink of financial collapse.
The government said on Thursday it wanted tighter regulation around the water industry, telling Ofwat to ensure funding for vital infrastructure investment was ringfenced, and not spent on executive bonuses or paying out dividends.
For the next five years, Ofwat said on Thursday that companies would be able to increase average bills by 21%, or 94 pounds ($121), and that overall the companies should spend 88 billion pounds on upgrading infrastructure to clean up rivers.
Those bill rises were much lower than companies had wanted.
Thames Water, for example, had wanted to hike bills by 191 pounds over the five-year period, but making its initial decision Ofwat said it would allow a rise of 99 pounds.
The privately-owned company warned on Tuesday it would run out of money next year if it did not secure 3.25 billion pounds of equity and that it needed the higher bill rise to help it attract new equity from investors.
Ofwat Chief Executive David Black said under its terms, Thames Water's investors would still be able to make returns.
"We think the determination that we've set provides Thames Water with a fair set of returns, it's now their job to go to investors and to seek to raise that funding," Black told BBC radio.
Ofwat is due to publish its final decision on future bills and investment on Dec. 19. Should they disagree, the companies can refer their case to Britain's Competition and Markets Authority.
($1 = 0.7777 pounds)
