4th Apr 2014 09:44
LONDON (Alliance News) - Pennon Group PLC shares rose Friday after the business plan of its South West Water unit was given 'enhanced' status by the UK water regulator, a key step in getting final clearance for the plan before the regulator sets the prices water companies will be able to charge customers over the five years starting in 2015.
In a statement, Ofwat said it had pre-qualified South West Water, as well as water company Affinity, for enhanced status based on "the high quality of their business plans". It said both companies had accepted the regulator's guidance on risk and reward, including the cost of capital, and had committed to a small number of changes to improve their business plans.
The regulator sets limits on the prices that the UK's water companies can charge customers every five years. The UK has a large number of water companies, but they are based in individual regions and have a monopoly in those regions. Only very large businesses can choose who supplies their water. The market is therefore regulated to ensure that companies deliver the services that customers require and don't overcharge for those services.
The UK's 16 other water companies will now have to submit new or improved evidence as part of their business plans, Ofwat said.
Those companies include Severn Trent PLC and United Utilities PLC.
All the water companies submitted their business plans to Ofwat last December, but the regulator said the companies' proposals on risk and reward were not in line with its expectations. Ofwat issued guidance on risk and reward in January, including a weighted average cost of capital of 3.85%.
"In this price review we challenged companies to change their approach and they have. I am pleased to see increased ownership from boards and much greater engagement with customers. Such changes are crucial if the sector is to retain the necessary trust and confidence of the public," said Ofwat Chief Executive Cathryn Ross in a statement.
"Ofwat has stated that it will publish a draft determination for South West Water as an enhanced company on 30 April 2014 which the company will now await," Pennon Group said in a statement.
The water price review comes at a time when the UK's energy suppliers are under intense scrutiny from politicians amid claims that they have been overcharging customers for gas and electricity. Those companies are facing a competition review, amid accusations that they have lost the trust of the public.
Pennon Group shares were up 1.5% at 734 pence Friday morning. Severn Trent shares were up 1.1% at 1,837 pence, while United Utilities was up 0.7% at 794.062 pence.
By Steve McGrath; [email protected]; @SteveMcGrath1
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Related Shares:
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