Ofwat 'fines' Yorkshire Water pounds 40m

Yorkshire Water was yesterday in effect fined pounds 40m by the industry regulator Ofwat for its "serious failures" in coping with last year's drought when it only avoided rota cuts by tankering in water in a fleet of 700 lorries.

In an unprecedented move, Yorkshire has agreed not to increase prices by more than the rate of inflation next year in recognition of its failure to meet its obligations or deliver an adequate service. It had been entitled to raise them by RPI plus 2.5 percentage points.

The price freeze will have a knock on effect in 1998-99 and 1999-2000 resulting in customer bills being lower than allowed for in Yorkshire's price control and lowering the company's revenues by some pounds 40m. It has also agreed to a new set of performance targets that will involve additional spending of pounds 50m on top of the pounds 170m extra it is already spending to improve supplies.

The fresh price curbs were announced by Ian Byatt, Director General of Water Services, as he published the damning results of an investigation into Yorkshire Water's performance last year. The inquiry found serious failures by the company in controlling leakages, minimising unplanned supply interruptions and controlling flooding from sewers.

"It is not the job of the regulator to seek to manage the company", Mr Byatt said. "But when a company fails to deliver the standard of service which customers have paid for it will be required to undertake specific action, to report the outome to the regulator and to be restricted in its ability to increase its prices."

Brandon Gough, who took over as chairman of Yorkshire Water a month ago, said: "The new management of Yorkshire Water believe it vital to secure the trust and confidence of customers by delivering high-quality, reliable service. Mistakes were made in the past but it is now important to look to the future."

In his report Mr Byatt said Yorkshire had not paid enough attention to the problems of leakage, supply interruptions or flooding and did not have adequate plans to deal with them.

He also criticised Yorkshire Water Service's payment of a pounds 50m special dividend in the summer of 1995 which, in retrospect, was "not appropriate in the circumstances" and may mean it has to receive a cash injection from its parent company to finance its operations.

In addition to the price freeze, Yorkshire has undertaken to meet a series of performance targets by the the end of the decade. These include cutting by two-thirds the number of customers affected by unplanned supply interruptions of 12 hours or more and halving the number of customer affected by sewer flooding.

The drought began in Yorkshire in April 1995 when rainfall began to fall significantlly below the average and remained that way through the summer. In July, a hosepipe ban was introduced and in August Yorkshire Water erected trial standpipes in Bradford.

The tankering operation began in September with water being ferried in from as far afield as Northumbria in a fleet of tankers that grew steadily from 200 to 700 at the peak of the operation.

From October to early January this year there was a real possibility of rota cuts or other emergency measures being implemented. Only the tankering operation and emergency capital works avoided that.

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