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Flood of Complaints Forecast for Water Companies

Posted on: Monday, 5 June 2006, 15:00 CDT

By Sam Fleming, Daily Mail, London

Jun. 2--David Miliband clearly thinks he is today's kind of Environment Minister. Fresh in his post following Labour's latest reshuffle, the youthful politician has inaugurated a blog on his departmental website, filled with chatty reflections on biodiversity, animal welfare and a recent away-day at a Hampshire farm.

Today the site may get rather more hits than usual, as bosses from the water industry log in to read Miliband's thoughts in the wake of a summit he hosted yesterday in Westminster.

The industry is suffering a crisis of confidence. Directors have been forced on the defensive as they report buoyant profits against a background of bill increases, drought orders, hosepipe restrictions and chronic leakages.

United Utilities yesterday reported a £480.5m profit, up by a fifth on last year.

The same day Pennon, which operates in the South-West, racked up £111m of earnings, compared with £89m last time.

Anglian Water operator AWG recently revealed that profits had more than doubled. Analyst Angelos Anastasiou of Williams de Broe reckons the industry could easily rack up £2bn of profits in the current season.

That will please shareholders, but it comes as headlines are dominated by the woes of the drought-hit South-East.

Thames Water, which is gearing up for a possible flotation, has faced a barrage of headlines attacking the torrents coming from its ancient pipes.

Severn Trent, which is expected to unveil a jump in profits next week, is under a cloud after reporting false data to the industry regulator.

United Utilities admitted yesterday that there is "plenty of scope" for it to improve its own customer service.

In response to a litany of criticism, the industry points out that it is investing billions improving infrastructure and meeting environmental standards set by the European Union. Investment between 1989 and 2010 will total more than £65bn, according to regulator Ofwat.

Ofwat agreed to a heavy set of price increases between 2005 and 2010. But it is only by improving profits that companies can expect to tap the capital markets for the debt and equity they need to spend on investments. And, they point out, every year water companies plough more money into investment than they make in profit.

There is no doubt the industry is far more efficient than it was before privatisation. But Geraint Anderson of Dresdner Kleinwort Wasserstein fears the regulator may have got the subtle balance between the interests of shareholders and customers wrong in his most recent pricing review.

"Generally, the 2004 price controls for water companies were overly generous to shareholders," he said.

Anderson also claims the regulator failed to take enough account of the unusually low cost of borrowing that companies currently enjoy.

For its part, Ofwat says bill increases were "unavoidable" because of higher operating costs and infrastructure investment.

Following yesterday's summit Miliband said that increased water metering and a renewed focus on conservation would be crucial in coping with the shortage.

In his blog, he claims to be addressing a dangerous gap between politicians and the public.

But as water bills rise inexorably higher, it will remain to be seen if Miliband can help bridge the growing rift between the water industry and its customers.

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Copyright (c) 2006, Daily Mail, London

Distributed by Knight Ridder/Tribune Business News.

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PNN, UU, AWG, RWEOY, RWE, SVT,

Source: Daily Mail

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