Agency challenges water bill cuts

The dispute over cuts in water bills planned by the industry regulator will intensify this week when the Environment Agency releases a wide-ranging consumer survey which will show customers would prefer to see money spent on environmental improvements. But as Chris Godsmark, Business Correspondent, reports the regulator is standing firm over his proposals.

The opinion poll research commissioned by the Environment Agency, the independently run body responsible for monitoring pollution and water quality, is expected to endorse overwhelmingly its claim that consumers would like more funds poured into discretionary improvement schemes.

The evidence gained from surveys of more than a thousand households, to be released on Wednesday, will be used by the agency to support its argument with Ian Byatt, the regulator, over the shape of the next five- year price formula which starts in 2000.

Mr Byatt wants to see a big, one-off cut in bills, similar to that imposed this year on the pipeline network of the former British Gas, to make up for low investment and big dividend increases by the privatised water groups.

The agency is preparing a shopping list of extra environmental improvements for the next price control, including additional spending on sewer overflows and reducing river extractions. Ed Gallagher, the agency's chief executive, believes the cash gained from these price cuts would be better spent on the environment, a battle his predecessor lost to Mr Byatt in the early 1990s in a high-profile feud.

Yesterday the agency declined to speculate on the results of the survey. However, it is thought to support "very strongly" Mr Gallagher's argument. The water companies are backing the agency's case, though critics argue they prefer bigger investment spending because they can find further cost savings from their budgets to pay out as dividends.

The debate will ultimately go to John Prescott, the Deputy Prime Minister, who has influence over how many of the improvement schemes are included in customer bills. However, Mr Byatt has sought to stamp his authority on the review, insisting that he has the final say over the way the price formula is calculated.

He said a fortnight ago that he did not believe Mr Prescott would attempt to force the regulator to abandon the principle of a big one-off price cut. "That's not what he will do because it's not proper or appropriate," said Mr Byatt.

The regulator said the price cut related to efficiency gains made during the current five-year formula. "That's my job and I must be able to do that independently. If I'm not able to do that then you've lost independent regulation," added Mr Byatt.