Shares at Midland water giant Severn Trent dropped sharply after regulator Ofwat published draft plans to reduce water bills for families.
The draft determination from the water watchdog wants a reduction of eight per cent in water and sewerage bills by 2015, a drop of £24 on the average household bill to £281. This would not stop Severn Trent from investing in infrastructure – but would be a serious problem for the firm’s margins.
Ofwat said Severn Trent should look to reduce leakage by about 66 million litres per day by 2015 to ensure there was enough water to meet demand.
Regina Finn, chief executive at Ofwat, said: “We understand times are hard, and we have listened to what customers have told us. They want safe, reliable water supplies at a reasonable cost.
“Our decision will keep bills down, while allowing Severn Trent to invest around £2.2 billion. It’s vital that we learn lessons from the past and keep taps running during severe events such as flooding. Severn Trent is investing in protecting its water treatment works and also linking up networks to make sure customers aren’t reliant on one source. We’ve challenged Severn Trent’s plans hard.”
Earlier this year Severn Trent’s average bill went up by five per cent to £305, a decision not popular with Ofwat. At the time, Severn Trent said their services still offered good value for money.
After the Ofwat announcement, Severn Trent chief executive Tony Wray said: “The Draft Determination is a complex document and there is a lot of detail to consider. We will be carefully and thoroughly reviewing all of its content and conclusions before responding to Ofwat in September 2009.”