Ministers to meter more homes to fight drought

The Government hinted at an extension of water metering and a widening of hosepipe bans yesterday to try to combat the worst drought conditions south-east England has faced in 30 years.

Addressing a drought summit of consumer groups, industry representatives and regulators, the new Environment Secretary, David Miliband, said ministers would look at the scope for increased metering in regions suffering "water stress". At present, 28 per cent of British households have water meters. But he rejected calls for a national water grid to pump supplies from the North to the drought-threatened South on the grounds that the costs would be "disproportionate and unjustifiable", both in financial and environmental terms.

Mr Miliband was speaking as two water companies, United Utilities and Pennon, announced big rises in profits on the back of the increases in domestic bills which the industry regulator Philip Fletcher sanctioned last year.

UU, which owns North West Water, said pre-tax profits rose 21 per cent last year to £481m. Pennon, the owner of South West Water, reported a 24.6 per cent increase in profits to £110.9m.

Neither company is among those which have obtained or are thinking of requesting drought orders and both said their reservoirs were nearly full. Philip Green, UU's new chief executive, defended the sharp rise in profits on the grounds that the company needed strong earnings to attract the investment necessary to modernise its network.

Last year, capital investment in the group's regulated water and electricity businesses, reached £582m, outstripping group profits. It plans to invest £4bn over the 2005-10 period covered by the latest price controls.

Mr Green said UU was on course to achieve the outputs demanded by the regulators in terms of leakage reduction, water mains replacement and environmental initiatives. But he said there remained much to do to improve customer service. He ruled out a bid for Thames Water, which is to be floated on the stock market or sold to a private buyer by its German parent, RWE.

However, he said UU would be very keen to win the contract to manage the Thames network should RWE decide to sell to a private equity firm which would then outsource operation and maintenance. UU's contract solutions division has won about 60 per cent of contracts put out to tender so far in the UK.

Pennon's profits were boosted by price increases and a strong performance from its Viridor waste division. It also announced a capital split under which shareholders will get three shares for every one held.