U.S. Water News Online
LONDON -- British households face a sharp rise in their
water supply bills in the period 2005-2010 to help pay for further
proposed environmental improvements, according to industry regulator
"Potentially, we're talking about big bill increases," Ofwat
Director General Philip Fletcher told a news conference. In the
recent past, Fletcher has only acknowledged that prices would not
Britain privatized its water industry in 1989. Since then, bills
have risen by 20 percent in real terms, helping firms such as United
Utilities and Severn Trent upgrade outdated pipes and deliver cleaner
drinking water, and delivering big dividends to shareholders.
Ofwat sets prices every five years for English and Welsh water and
In the last price review, covering the period for 2000-2005,
companies asked for an average 3.8 percent a year increase in bills,
but Ofwat imposed a 12 percent price cut over the period, sending
shares in water companies tumbling.
Ofwat said that water companies envisaged the average household
bill rising 31 percent to $511 by 2010.
Many water companies have large debt burdens after borrowing
heavily to pay for network improvements.
Earlier this year, United Utilities raised one billion pounds in a
rights issue to help fund its investment programme.
However, Ofwat said that few companies expected to raise equity in
the 2005-2010 period.
The regulator also said companies' cost of capital was unlikely to
"Overall, at this stage, we believe that there is no strong case
for setting the basic cost of capital at a lower level than at the
last review," it said. Water shares were little moved in early
trading, but analysts said the news was encouraging for Britain's
stock market listed water firms.
"The comments on cost of capital are encouraging," said UBS. "This
is good for the sector, in our view."
Ofwat added it expected water companies to be able to sustain
gearing -- the ratio of a firm's debt to equity -- in a range of 55
to 65 percent for the 2005-2010 period.
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