There’s a piece in the Financial Times today that could affect Water bills for Isle of Wight households.
The FT reports that Southern Water are considering asking the water regulator, OfWat, for permission to raise prices.
They quote Mike Jones, interim finance director at Southern Water, who said that raising customer bills “would seem to us to be the fairer way to deal with it”, adding that Southern Water had yet to take a final decision on whether to request an interim pricing review.
Price agreement already in place
Luckily for customers of Southern Water, it’s not quite as easy as the company just saying they want to put prices up, as OfWat controls the prices and they have already made an agreement with the water companies on pricing that last until 2015.
Southern Water are appealing against this. The FT says Southern Water, (part-owned by the Australian bank Macquarie who also own WightLink see below), wants the price increase to raise income, as they’ve just had their credit rating cut to, “just two notches” above junk status.
Massive debts
The FT goes on to say, “Gearing (borrowing) at the company, as measured by net debt to regulated capital value, stood at 89 per cent as of March 2010. The group completed a refinancing earlier this year.”
In simple terms – they borrowed a massive amount of money to buy it (£4.2Bn paid in 2007) and if they raise water prices, they can make more money, which they can use to pay off their massive debt.
Happily it doesn’t sound like Ofwat are going to be compliant, they told the FT, “Southern had the chance to appeal our decision on prices to the Competition Commission. They didn’t – they accepted our decision. We set price limits that allow efficient, well-run companies to finance their functions. Southern needs to deliver for its customers.”
“We’d be challenging them quite hard”
The Consumer Council for Water are also involved, with their chief executive Tony Smith telling the FT, “It’s quite early in the regulatory process for them to be coming back and asking for more money. We’d be wanting to understand the detail and we’d be challenging them quite hard.”
