Water regulator warns one-off price cuts possible
Thursday 16 January 1997
Ian Byatt told MPs at the Commons Trade and Industry Select Committee that the idea of one-off price cuts, which were rejected in his last price review in 1994, were firmly back on the agenda.
Commenting on the much criticised excess profits earned by the companies, he said: "If these high returns continue ... then I would think much more in terms of a once and for all reduction in prices as has happened in the energy industries."
The price cuts planned for British Gas's pipeline network, TransCo, by Clare Spottiswoode, the gas industry regulator, led to an unprecedented public row and the high risk decision by the company to take the issue to the MMC. Ms Spottiswoode wants to slash TransCo's revenues by 20 per cent from April, worth almost pounds 30 off average bills.
The principle of a dramatic one-off cut, known in regulatory circles as a "P-nought", was also used by Professor Stephen Littlechild, the electricity regulator, in his recent price cap for National Grid which cuts charges by 20 per cent from April.
The move reflects an increasingly tough stance by Mr Byatt in recent months as several of the 10 privatised water and sewerage businesses have failed to meet Ofwat investment targets. The current price formula allows water bills to increase by an average of 1.5 per cent above inflation to pay for the huge backlog of under-investment from before the industry sell-off.
Mr Byatt told MPs his ideal rate of return on investment for water companies was some 5 to 6 per cent, compared with a current average rate of return earned by the 10 companies of more than 12 per cent, with Welsh Water and Northumbrian Water earning the highest returns.
Simon Flowers, head of utilities at NatWest Markets, said a one-off cut would hit companies' profits in the first year, though the crucial factor was whether prices rose or fell in following years. "This would seem to be a vindication of the strategy at Ofgas. In the light of the British Gas example Ian Byatt has been portrayed as being the most lenient regulator on prices, but he's been rattling the companies' cages for some months now," he commented.
Last night, water companies reacted with scepticism to the idea of one- off price cuts. Barry Delabour, head of regulation for Southern Water, said a cut on the scale of that planned for British Gas would be "ridiculous". He continued: "We will be arguing that there's still heavy investment needed and we have got the heaviest investment programme of all."
However, Frank Dobson, Labour's environment spokesman, was unimpressed by the move. "It's a bit late in the day and I don't think this will do anything permanent."
The current price control period was originally intended to last from the 10 years from 1995, with increases in bills in real terms also planned for 2000-2005. However, last October Mr Byatt said he would review the formula by 1999 and has indicated recently that from 2000 the companies can expect cuts in real terms along the lines of those in other regulated industries.
Mr Byatt has already warned that he may ask some companies not to implement the full price increases from April. Water bills have to be sent out in advance of the next billing year, and need to be printed from the end of next month.
Comment, page 21
- 1 Michael Brown shooting: Police shoot and kill second young black man near Ferguson
- 2 James Foley 'beheaded': Isis video shows militant with British accent 'execute US journalist' – and warns Obama of more to come
- 3 ALS ice bucket challenge co-founder Corey Griffin drowns aged 27
- 4 Cilla Black defends Cliff Richard: 'I am positive that the allegations are without foundation'
- 5 James Foley 'beheading': Met police warn public watching murder video could be criminal offence
James Foley 'beheaded': PM cuts holiday short for emergency meeting on British response to latest Isis atrocity
Michael Brown shooting: Police shoot and kill second young black man near Ferguson
ALS ice bucket challenge co-founder Corey Griffin drowns aged 27
James Foley 'beheaded': Isis video shows militant with British accent 'execute US journalist' – and warns Obama of more to come
Iraq crisis: Islamic State's message to America - 'We will drown you all in blood'
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Isis threat: Cameron wants an alliance with Iran
Crisis? What crisis? A visiting US doctor gives the NHS a rave review
Ukip MEP calls for reintroduction of death penalty on fiftieth anniversary of last deaths
Russell Brand calls for Israel boycott: Comedian urges big businesses that 'facilitate the oppression of people in Gaza' to pull funding
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
iJobs Money & Business
£450 - £600 per day: Harrington Starr: AIFMD Business Analyst / Consultant - I...
£450 - £600 per day: Harrington Starr: Business Analyst Solvency II SME (Pilla...
£350 - £365 per day: Orgtel: Manager, SAS, Data Warehouse, Banking, Bristol - ...
£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Linux, SQL Se...