30/11/09
Ofwat issued its final water price limits for 2010 to 2015, moving on from unrealistic draft determinations but still arriving at flat bills in real terms on average across the industry.
Allowed capital expenditure was higher but more work was expected. Operating expenditure also rose. Ofwat listened to industry and investor concern about risk by accepting the need for additional grounds for interim determinations. The cost of capital was unchanged at 4.5%.
Industry and investor representations appeared, therefore, to have had some effect in shifting Ofwat from what some commentators had referred to as the 'draconian' drafts.
Market reaction has been positive, with shares rising against a falling FTSE index. However, investors at Ofwat's City briefing wanted to dig below the surface and understand the detail. They did not get satisfaction though, with big issues, such as the rationale for treatment of pension costs, remaining unclear.
Emerging analyst reports note the improvement from draft determinations but point, inter alia, to market sentiment still being less favourable than pre draft determinations, to an increase in regulatory risk and to an expectation that, while rights issues may no longer be needed, there will be pressure on dividends at some companies.
Contact: Water UK Communication
