Water companies defy Ian Byatt on bill cuts

The latest prices proposed by the water service companies have fallen well short of Ofwat director general Ian Byatt's demand last November for a huge 20% cut in water bills.

Sutton and East Surrey Water says: “Our customer surveys clearly show that customers are already satisfied with the current service quality and prices and are not seeking the changes imposed by the new obligations and legislation.”

Sutton says changes introduced by the government since November, such as improving water quality by replacing lead pipes and introducing free metering will require a massive CAPEX increase, “from £56M in 1995-2000 to £145M in 2000-2005”, and is therefore very reluctant to reduce prices.

Any proposed reductions in price are at best temporary. Severn Trent, for example, has proposed an initial price cut of 5% in 2000; £12 off an average household bill. Prices will then increase by around 1.5% p/a to finance Severn’s ongoing £2.3 billion investment programme.

Thames Water has taken a similar stance, proposing a £10 reduction on combined water and sewerage bills on April 1 2000, followed by a £5 increase each year to fund “environmental and service improvements”.

Ofwat will now examine each case in detail and announce draft price limits on 27 July. Final price limits will not come into force until April 1 2000, the beginning of the next five-year regulatory phase.

If any of the water companies still fail to agree with Ofwat, they will then have to appeal to the Competition Commission (formerly Monopolies and Mergers, MMC). At the last price review in 1995 only two water companies appealed, Portsmouth Water and SW Water, and the MMC’s response was broadly in agreement with Ofwat.

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