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Water Price Cuts Could Cost Customers The Earth
  • Price cut will dilute ability invest in future of water services
  • Customers want further improvements and stable prices beyond 2000
  • Proposed cut in water bills worth around 12 pence a day

Price cuts worth just 12 pence a day per family could end up costing Midlands water customers the earth, water company Severn Trent has warned.

Industry regulator Ofwat today published proposals for a price cut of up to 20% in Severn Trent Water bills after 2000.

Bu the company has consistently warned that a price cut would hit its ability to invest in securing medium to long term supplies as the climate changes, as well as in environmental improvements, improved taste and appearance of drinking water, and tackling sewer floodings. Independent research shows customers prefer stable prices with continuing investment rather than a cut in bills.

The draft of Ofwat’s pricing regime, published toady, for five years beyond 2000 suggests a price cut of 15 – 20% on Midlands water bills. That would bring a reduction of around 12 pence a day to Severn Trent’s average household bill – a bill already among the lowest in the country.

"But common sense dictates the cost of that 12 pence may mean fewer improvements including work on securing medium and long term water resources against climatic uncertainty," said Brian Duckworth, Severn Trent’s managing director.

"Our customers tell us – not just through one off research but over years of listeneing to them – they want us to focus on four key areas: increasing the reliability of water supplies in the medium and long term; better taste and appearance of drinking water; more environmental benefits such as cleaner rivers; and, after this summer especially, tackling the threat of sewer flooding.

"Customers want to see us do that within a framework of stable prices, rather than sacrificing improvements to any price cut," explained Mr Duckworth.

During the nineties Severn Trent Water will have invested 4.5 billion on improving services, equivalent to around 1,500 for every home served by the company, or about three quarters of the total average bills paid over the same period. Midlands customers now enjoy record quality tap water, and, according to the independent Environment Agency, rivers in the region have already improved by more than a quarter due to better sewage treatment.

"The company has improved efficiency significantly through the nineties, and the benefits from that efficiency are already being shared with our customers, our environment and our shareholders.

"We’ve given customers 87 million back off their bills over the last five years, and we’ve spent 220 million more to bring extra improvements over and above those we had agreed with Ofwat," stressed Mr Duckworth.

He went on to say: "The risk is that any price cut may endanger those improvements, and there is also still much to do in developing a sustainable water cycle. This is why it could cost us the earth.

"We have met the challenges of the nineties successfully. Beyond 2000 the key issue is climate change and protecting the whole water cycle that we all depend on.

"If we are to build a truly sustainable water cycle where we can guarantee water supplies in themedium to long term, and can protect vulnerable areas from over use and pollution we must continue to invest for everyone’s future.

"We believe we can deliver all this for our customers, and keep bills among the lowest in the country, with no increase in prices in real terms.

"That’s what customers tell us they want, and that’s what we want to deliver for them," said Mr Duckworth.


Investment completed by Severn Trent Water since privatisation, or due for completion by 2000, includes:

  • Brimingham Frankley water treatment works (70 million); Minworth sewage treatment works (90 million)
  • Wolverhampton Barnhurst sewage treatment works (20 million)
  • Staffordshire Tittesworth water treatment works (25 million); Strongford sewage treatment works (6 million); Claymills sewage works (6 million)
  • Shropshire Telford mains improvement (4 million); Modernising county sewage treatment works (7 million)
  • Montgomeryshire Water mains improvements (10 million)
  • Leicestershire Melbourne water treatment works (46 million); Wanlip sewage works (20 million)
  • Derbyshire Little Eaton water treatment works (29 million); Derby sewer improvement strategy (40 million)
  • Nottinghamshire Nottinghamshire groundwater scheme (37 million); Stoke Bardolph sewage works (40 million)
  • Coventry Stensham water treatment works (50 million); Finham sewage treatment works (32 million)
  • Worcestershire Trimpley water treatment works (25 million); Finham sewage treatment works (30 million)
  • Gloucestershire Mythe water treatment works (40 million); Netheridge sewage tretment works (30 million)

The company has also restores or added 13,924 killometres (8,646 miles) of water mains at a cost of 1,078 million. A further 1,826 kilometres of sewer (1,134 miles) has been added or restored, and 425 combined sewer overflows improved or removed at a cost of 631 million.

Severn Trent plc issued the following Stock Exchange announcement this morning: In response to the ‘Prospect for Prices’ consultation paper published today by Ian Byatt, Director General of OFWAT, Vic cocker, Chief Executive of Severn Trent plc said:

"We are very disappointed with both the tone and contents of this consultation paper. We intend to challenge the key assumptions and their consequences to ensure that our customers’, employees’, and shareholders’ interest are protected."

  1. A 15 –20% cut could represent an income reduction of 150 – 200 million.
  2. Operating costs of Severn Trent Water are only 350 million; a large proportion of these costs (rates, abstraction charges etc) are fixed.
  3. Capital expenditure in 1997/98 was 516 million, and interest charges were 48 million.
  4. The replacement value of our assets is 28 billion; asset replacement is a key driver for maintaining customer service.
  5. The wage bill in 1997/98 was 130 million.



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CWN / Business / 29 Oct 98 / Water Price Cuts Could Cost Customers The Earth

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This page modified on 10 November 2008 09:49:15AM