Warning on water prices: Regulator tells companies to expect lower rate of return

IAN BYATT, the director-general of water services, has signalled a clampdown on spiralling water and sewerage bills in his review, due later this year, of water companies' price controls, writes Mary Fagan.

Mr Byatt told the House of Commons Environment Select Committee that the companies must now be seen as low-risk operations able to shoulder much higher gearing and a lower rate of return than those envisaged when they were privatised.

He said that companies with the highest costs would be under pressure to lower prices even if it meant restructuring. In one of his strongest warnings so far, Mr Byatt said: 'Things may have to go. Management may have to be thinned out, and they might have to look at new technologies. It is part of management's job to do such things.'

He would listen to the companies' views but once he had set the price caps, firms that felt they could not live with his decision would have to take the matter to the Monopolies and Mergers Commission. Where companies failed to live within the regime, others could come in and take over their assets.

Mr Byatt told the select committee that the heads of Ofwat's 10 customer services committees - laymen and women who help to look after consumers' interests - would be privy to confidential information and business plans submitted by the companies.

He defended his choice of appointees to head the committees, against criticism from hostile Labour MPs. He had come under fire for appointing a school friend and the wife of a former civil service colleague as chairmen of two of the organisation's regional committees.

Mr Byatt told the select committee: 'Every one of these appointments can be justified on merit.'