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Water costs `should be passed to customers'

THE WATER regulator yesterday called for the power to pass on to customers any unexpected cost increases the industry may incur under the Government's plans for regulation of the privatised utilities.

Ian Byatt, the director-general of water services, said that the so- called "error correction mechanism" proposed by the Government should work both ways.

"A system under which customers receive the benefits of unexpected changes to specific factors outside the companies' control, yet shareholders bear any losses, would increase the cost of capital which would result in higher bills," Mr Byatt said in response to the Green Paper on utility regulation issued in May.

The electricity industry has already called for the error correction mechanism to be discarded because it will increase the cost of borrowing and could be a back-door way of clawing back what the Government felt to be excess profits.

In his submission, Mr Byatt also says that a minimum number of specific and pre-defined factors should have to apply before the error correction mechanism could be used to claw back revenues from the water companies.