Water firms await Ofwat pricing proposals

25th Nov 2009 15:02

Water companies are not normally known as generators of great excitement, but all eyes will be on the sector tomorrow as the regulator Ofwat gives its final determination on how much they can charge customers over the next five years.With householders still reeling from the economic crisis, the water companies have been asked to reduce bills by an average of 4% before inflation is considered or from £344 to £330 a year over the next five years. They were allowed to raise bills by 5.1% from 2005 to 2010, much to the dismay of consumer groups.The current plans envisage £21bn being invested in maintaining and improving services across the industry.Northumbrian, which operates in northeast England and parts of Essex and Suffolk has been given initial permission to lift average annual bills by £3 to £320 in real terms over the next five years, but Severn Trent, which covers parts of the Midlands and Wales, is to cut bills by £24 to £281 and United Utilities, covering Northwest England, by £17 to £359. South West Water, which is owned by the listed firm Pennon, is to reduce bills by £30 to £458.Northumbrian has this week ruled out a rights issue but the Severn and United are among the companies thought to be considering cutting their dividends.United Utilities this week lifted its interim dividend by 5% to 11.17p from 10.64p after higher revenues resulted in an improvement in underlying profit before tax to £268.2m from £252.6m a year earlier.United Utilities is to look at selling off other parts of its non-regulated business after agreeing to sell its holdings in Northern Gas Networks and Manila Water for £130m.While chief executive Philip Green said such moves were not 'a buffer or fighting fund for the Ofwat decision,' they would certainly assist the company's balance sheet in the face of the straitened times awaiting the company if it does have to cut bills by £17.Aside from dividend cuts and fundraisings, one possible consequence of the Ofwat proposals is a spate of merger and acquisition activity in the sector. If Ofwat does stick to its original decision, some water companies are expected to complain to the Competition Commission. The companies will have two months from tomorrow to decide whether to challenge the plans.