Although the sector delivered a pounds 1.6bn profit this year, just 1 per cent down on the previous year, a more telling measure of performance is the bonus - or lack of it - paid to directors, given that these are based on targets set by the management.
At five of the companies, boardroom bonuses fell substantially in 1994. Of the remaining five, Wessex and Southern Water have not yet declared their hand by releasing their annual reports, Yorkshire Water terminated its bonus arrangements last year and North West Water did not deign to supply information. Only Severn Trent showed a jump, with the total bonus for directors soaring from pounds 95,600 to pounds 127,600 in 1994.
At Northumbrian Water, which saw profits slide 9.5 per cent to pounds 62.8m, 'no bonus was awarded as the targets were not achieved'. The same was true at Thames Water, where diversification has cost the company dear, with provisions of pounds 35m for the year.
Meanwhile, the chairman of Welsh Water saw his bonus slip from pounds 26,000 to pounds 9,000, and the highest-paid director from pounds 26,000 to pounds 12,000, as profits slumped by 7 per cent to pounds 144.2m.
At South West Water, where profits rose fractionally to pounds 93m, the total bonus paid to directors fell from pounds 78,000 to pounds 55,000. The chairman and highest-paid director each received pounds 13,000 - down from pounds 20,000 and pounds 26,000 respectively.
Boardroom bonuses also fell - from pounds 72m to pounds 61m - at Anglian Water, although, given a pounds 60m hit for restructuring costs that sent pre-tax profits down 29 per cent to pounds 132.2m, a bonus of any kind would have been unjustified.
The managements of the water companies have not been renowned for the modesty of their salaries since privatisation. So a cut in bonus payments suggests that the water companies face serious problems in their businesses.
Those cannot be tackled, however, until the review of water pricing is complete. Fortunately, customers and companies have only days to wait. Next Thursday, Ian Byatt the head of Ofwat will announce the new 'K' factors, which will control the prices water companies can charge for the forthcoming decade. They will be the determining element in the profitability of water companies for the forseeable future.
His verdict will inevitably mix political and financial criteria - witness the frenzied lobbying activity and this month's publication of damning reports by Which, the consumer magazine, and the National Consumers Council which have accompanied his review.
The Which study was widely dismissed in the City on the grounds that the figures were dubious. The NCC study, however, has enjoyed far wider currency.
It showed that since privatisation water bills for domestic consumers across all 31 water companies - the 21 statutory (privately owned) water companies as well as the 10 water and sewerage companies - had increased by an average of 67 per cent. Customers of the 10 privatised companies alone paid an extra pounds 2.89bn - pounds 2bn more than they would have if bills had kept in line with inflation.
Both reports, however, were rather belated if their aim was to sway Mr Byatt.
'Theoretically, Byatt has given out the provisional Ks and had the last meeting with most, or all, the water companies. Most things should have been put to bed and I can't think these reports will have any effect,' said Peter Hyde, utilities analyst at Kleinwort Benson.
Nevertheless, they are probably symptomatic of the extent to which rising water charges have raised the political tempo which will surround Mr Byatt's decisions.
Robert Miller-Bakewell, industry analyst at NatWest Securities, points out: 'Preoccupied with off- loading the industry in late 1989, HM Treasury acceded to a generous dividend policy for the first quinquennium and effectively implied it would continue beyond 1994/95.'
Now, he argues, the Government is no longer interested in reassuring investors, but with placating nervous backbenchers worried about their medium-term employment prospects. As a result, Mr Byatt is under pressure to shift the balance of rewards from shareholders to consumers.
But there have also been mutterings that water companies have ducked the original aim of privatisation. Privatised with the intention of catching up on a massive capital expenditure programme, which the Government wanted to see transferred from the public to the private sector, the water companies have funded much of their investment from earnings rather than equity issues or borrowing.
The NCC report estimated that the proportion of funds contributed by consumers was about 69 per cent in 1992-93, while overall gearing was only 24 per cent.
'Borrowings have been relatively modest and no significant capital was raised through equity issues, although one of the key reasons for privatisation was that the companies would be free to raise money in the markets,' it noted.
Mr Byatt has already highlighted the scope for increased levels of gearing, although some industry experts argue that if financial ratios deteriorate too seriously in the wake of the review, the cost of borrowing will be pushed up by a bigger risk premium.
However, Nigel Hawkins of Hoare Govett notes: 'Average gearing will be about 50 per cent by the year 2000, which for a utility with a monopoly business is hardly risky.'
Mr Byatt, who spent many years in the corridors of Whitehall, is too shrewd to have ignored the political demands for a tough periodic review.
Mr Hyde forecasts an average of 1.2 per cent for the first five years, falling to 0.8 per cent in the second half of the decade, while Mr Miller- Bakewell anticipates an average K of 0.2 per cent. He also believes Byatt will want to set price caps that push a handful of water companies into the arms of the Monopolies and Mergers Commission.
Mr Hawkins is more bullish. 'We believe the K factors will average 1.5 per cent between 1995 and the year 2000,' he says. He adds that there is safety in numbers. 'It is definitely beneficial to be part of a multi-company review. It makes it even harder for Ofwat to be really aggressive.'
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