Water companies ready for battle with regulator
December 2009
Ofwat is expected to challenge Britain’s water companies this month by ordering tough new price controls that could start a round of rights issues and a challenge from the Competition Commission, industry experts have warned.
The regulator is expected to make a declaration this month that will dictate the amount the companies can spend on upgrades to Britain’s water and sewerage network from 2010 to 2015 and how much they can charge the country’s 26 million households.
Duncan Michie, utilities director at PricewaterhouseCoopers, the consultancy, said that the regulator was ready to take on the industry and unlikely to retreat from tough draft proposals it set out in July. He said: “There will be a very strong message coming out of Ofwat. I would be very surprised if there are not some companies that will go to the Competition Commission.” He said that listed companies were likely to be forced to pursue dividend cuts and rights issues to cope with the more austere spending regime.
Mr Michie refused to comment on which companies might do so. Industry insiders informed The Times that Severn Trent and United Utilities were already considering different options for strengthening their balance sheets in case of a tough settlement.
Every five years, Ofwat sets limits on prices that water companies in England and Wales can charge. For 2010-15, it has proposed that, before taking inflation into account, bills should be reduced for many customers, bringing the average annual water and sewerage bill down by 4 per cent from £344 to £330 by 2015. The water companies had wanted a £28 rise to fund their business plans.
Ofwat was criticised in 2004 for giving an overly generous return of 5.1 per cent for the 2005-10 period. The ruling resulted in many takeovers in the water sector.
Michelle Williams from Artemis Solutions Group who specialise in recruiting for the Utility sector comments “The new price controls expected to be declared soon will be challenged by the water companies. Many companies are bracing up for heavy impact on their bottom lines”.
