North West, which is fighting Texas Energy Partners of the US for control of Norweb, declined to comment on whether or how much it might bid. But City analysts believe the offer of an extra 50p special dividend - which for some shareholders would carry a tax credit of 12.5p - will come by the end of this week.
The battle for Norweb intensified last week, when Texas launched an increased offer of pounds 10.85 per share, valuing Norweb at pounds 1.74bn. Texas, a partnership between Houston Industries and Central and South West Corporation, also made it clear it was prepared to consider another counter attack. Texas, which has yet to issue its offer document, has said North West's bid is overshadowed by regulatory risks and by the water firm's lack of experience in the electricity industry.
Speculation over North West's next move intensified as Ofwat, the water industry watchdog, called on companies to explain dividend payouts to the public and to share any benefits from increased efficiencies equally between customers and shareholders.
Ian Byatt, director general of Ofwat, said his concern is fuelled by the steady diversification of the companies away from the core water and sewage businesses and by the potential for takeovers in the utility sector, including the bid by North West Water for Norweb.
He said customers should be told how much of the dividends paid to shareholders come from the water and sewage services they pay for.
Mr Byatt said: "Accounts are not simply for the City. The water companies should explain to their customers and to the public generally what returns they have made in the regulated water businesses and what they intend to do with them. There is inadequate debate on the profits made in the regulated business, the trends in its costs or on its financial returns."
Mr Byatt added: "You are probably going to see more utilities becoming part of a larger group and regulators will want to see the regulated business deliver what it ought to within its pricing limits. We also want to see that there is no cross-subsidy, either in a financial sense or in transfer of goods and services within a parent group.They already have to account to me for the basis of their dividends. What I want now is for the companies to explain to the public what is going on." He demanded they start with the interim reporting season, which begins with Thames Water's half-year results on 31 October.
A City analyst said: "This is a veiled threat to the companies not to announce big dividend increases unless they can prove that they are covered by the non-core parts of the operation. He does not want to see big payouts at a time of particular sensitivity [among the utilities]. For the last five years the shareholders have benefitted at the expense of customers. Now he is trying to redress the balance."