Ofwat plans to reset water prices in customers' favour

WATER companies should be forced to keep average price increases to the retail price index over the next five to 10 years, according to a customer service watchdog set up by Ofwat, the industry regulator.

Jim Gardner, chairman of Ofwat's National Customer Council, said customers had suffered annual price increases averaging 5 per cent since 1989 and would not tolerate further real increases year after year.

Ian Byatt, director general of water services, is deciding on new price controls for the water companies to be announced on 28 July. The controls will take effect in 1995 and will last for 10 years.

Mr Byatt believes that, for the first five years, companies should be able to raise prices by between 0and 2 per cent above inflation to enable them to meet quality and environmental standards.

But Mr Gardner said it was up to companies to pay for improvements by increasing efficiency. Until now companies have been able to increase prices by between three and 11 points more than the retail price index.

Mr Gardner said: 'Shareholders have had a good deal from water companies. The balance must now be re-dressed in the customers' favour.' He said customers expected the levels of increased efficiency and the lower bills achieved by other privatised utilities.

The regulator must now set efficiency targets for the water sector that are harsh and stern, he said.

Mr Gardner admitted concessions might be needed for companies which were hit hardest by European Union directives on water and sewage quality.

City analysts reckon that the 10 biggest water and sewage companies could cut thousands of jobs but have not found the impetus because of their generous price controls.

Ofwat's customer service committees have had access to information provided by the water companies during the price review and will be present in the final meetings between them and Mr Byatt.