Water customers to share windfalls

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The Independent Online
The bulk of Britain's water companies have agreed to changes in their licences which will entitle customers to share in any windfalls they might receive.

The bulk of Britain's water companies have agreed to changes in their licences which will entitle customers to share in any windfalls they might receive. However, two of the country's biggest suppliers – North West Water and Thames – have not agreed to the new clauses.

The so-called "shipwreck clauses" allow the water regulator Ofwat to reset price limits for individual companies if they are affected by events outside their control.

This means that the supplier would have to cut its charges if it came into an unexpected windfall. But at the same time, it would be entitled to raise prices if it was hit by a natural disaster such as a catastrophic flood or earthquake. In either circumstance, the impact on the supplier would have to be equivalent to at least 20 per cent of its annual turnover.

Philip Fletcher, the director-general of Water Services, said yesterday that 10 suppliers including Welsh Water, Northumbrian, Severn Trent, Southern and Wessex Water, had agreed to have the new clause inserted into their licences. A further 10 water companies already have the clause in their licences.

That leaves only three companies still to agree to the change. North West Water, which is owned by United Utilities, and Portsmouth Water, have both objected to the clause. Thames has said it does not want the clause inserted for the moment but might agree to the change at a later date.

An Ofwat spokesman said it was difficult to visualise the case in which the shipwreck clause might be invoked. One instance might be where a supplier discovered huge mineral rights under land it owned. Another might be a natural disaster that caused an huge increase in the company's costs.

The financial impact of droughts or flooding caused by global warming would not be taken into account as these were already factored into the latest five-year price controls, which run until 2005.

Ofwat officials denied that the shipwreck clause was similar to the "error correction mechanism" that the Government initially considered introducing for the privatised utilities. This would have allowed regulators to order price cuts if the companies were found to have held back information or been deliberately misleading.

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