Water groups defy price cut demand

THREE of the UK's biggest water companies yesterday threw down the gauntlet in their battle with the water regulator, Ofwat, over the amount they can charge customers for the next five years. Only one, Thames Water, is proposing a cut in bills.

Thames, the country's largest water and sewerage company, proposed cutting bills by 5 per cent in the year 2000, taking pounds 10 off the average bill of pounds 205. But it wants bills to rise by 2.5 per cent above inflation in the succeeding four years.

Scottish Power, owner of Southern Water, brushed aside demands for a cut, proposing to raise bills 3.5 per cent next year and 3 per cent above inflation until 2005. Bristol Water wants an initial rise in real terms of 1.5 per cent next year and 1 per cent each year until 2005.

The proposals are in stark contrast to demands for hefty price cuts from Ian Byatt, director-general of Ofwat, last October. In Southern's case, he wanted a 17.5 per cent price cut next year.

Nigel Hawkins, utilities analyst at Williams de Broe, said: "There's a gap between the proposals of Ofwat and Thames Water, but with Scottish Power it's more like a chasm."

All water companies have been told to hand Ofwat their proposals for cutting bills while paying out for major environmental improvements demanded by the Government.

"Our plan will provide greater environmental improvements and deliver a stable price regime over the entire price control period in line with our customers' preferences," said Ian Russell, chairman of Southern Water.

Mr Byatt has indicated he is likely to soften his proposals because of the scale of investment the water companies will have to make under the Government's environmental programme.

Thames Water is planning to invest pounds 2.5bn to enhance the taste and appearance of drinking water, and to improve effluence flowing into shallow rivers.