OCT 98] SEVERN TRENT PLC PRESS RELEASE
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 Ofwats 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 Trents 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 Trents 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
"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.
"Weve given customers £87 million back off their bills over the last five
years, and weve 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 everyones 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.
"Thats what customers tell us they want, and thats 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
- Staffordshire Tittesworth water treatment works (£25
million); Strongford sewage treatment works (£6 million); Claymills sewage works (£6
- 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."
- A 15 20% cut could represent an income reduction of
£150 200 million.
- Operating costs of Severn Trent Water are only £350
million; a large proportion of these costs (rates, abstraction charges etc) are fixed.
- Capital expenditure in 1997/98 was £516 million, and
interest charges were £48 million.
- The replacement value of our assets is £28 billion; asset
replacement is a key driver for maintaining customer service.
- The wage bill in 1997/98 was £130 million.
READ OFWAT PRESS RELEASE
READ THE OFWAT REPORT