Water companies told to cut domestic bills by 14%

THE WATER regulator, Ian Byatt, will today announce that domestic water bills are to fall by 14 per cent next year, saving domestic customers an average of pounds 34.

Announcing new five-year price controls, Mr Byatt will tell water companies that charges in all parts of the country must be lower in 2005 than they are now. The pricing formula means bills will fall by an average of 2.7 per cent over the five-year period from April next year, resulting in a fall in real terms of pounds 38 per customer.

Mr Byatt has calculated that the water companies will re-invest pounds 24 per customer in environmental improvements over the period, resulting in an overall benefit per customer of pounds 62.

In his "Prospects for Prices" consultation paper last October, Mr Byatt, the head of Ofwat, proposed a one-off cut in water charges of 15 to 20 per cent next year, worth pounds 40 to pounds 50 off the average bill of pounds 245.

But this would have been followed by sharp increases in some areas of the country so that by 2005, households in the regions covered by Southern Water and Northumbrian Water would have been paying more for their supplies than they are now.

Mr Byatt will trumpet today's announcement as achieving lower prices across the board after five years, coupled with marked improvements in drinking water quality and treatment of coastal discharges.

The biggest one-off cut in charges will be at Northumbrian Water, part of Lyonnais des Eaux, where bills will fall next year by 25.5 per cent. Customers of Anglian have done least well, with bills falling by 11.3 per cent next year.

Price cuts at the other big water companies range from 15 per cent for Yorkshire and 14.1 per cent for Severn Trent, to 14 per cent for Welsh Water, 13.7 per cent for South West Water and 11.7 per cent for customers of Thames.

A number of companies may go to the Competition Commission, arguing that the reductions in prices mean they will be unable to finance their environmental programmes. The total bill for the industry over the five years is pounds 8.5bn.

Hyder, the owner of Welsh Water, has led the threats to contest Mr Byatt's price controls. In "Prospects for Prices", he proposed a one-off cut for Hyder of 15 to 20 per cent and projected that by 2005 customer bills would be much lower than now. Hyder responded by asking for a 5.3 per cent increase in prices for each of the next five years, which would have raised its average domestic bill to pounds 334.

All of Britain's 26 water companies were informed of Mr Byatt's draft determination on prices last night. They have four months to persuade him to soften his price curbs before he announces final price determinations in November.

The share prices of the big water companies have fallen by 10 per cent in four days as fears grew that Mr Byatt would not back down on the tough proposals last October.

One water company executive said: "These price curbs are a punch on the chin for the industry, but those with glass chins will suffer more than others."