It was unlikely that Tony Wray was going to pick a fight with Ofwat. Thus yesterday the chief executive of Severn Trent was charged with delivering the news to shareholders that next year the Midlands water supplier would have to cut their dividends by 10 per cent.
The move was forced on him by the water regulator’s ruling that Severn Trent — already with the lowest household bills in the industry — would have to cut its charges by 4 per cent over the next five years to an average of £291 a year. Mr Wray had argued that Severn Trent needed a 4 per cent rise in bills over the period to 2015.
Having lost the argument, he could have taken Ofwat to the Competition Commission. Instead, he decided that a cut in shareholder payouts would have to make up the revenue shortfall.
The wisdom of that decision is set against the history that Severn Trent has “form” with Ofwat.
Prolonged misreporting of various data to Ofwat in the years to 2004 had left the water group with £40 million of fines, as much again in rebates to customers and ended up in a trip to the courts to be prosecuted by the Serious Fraud Office.
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Mr Wray, 45, joined Severn Trent in 2005 and became chief executive two years later. While his hands were clean over the company’s scandals, he spent much of his first year in charge apologising for previous management.
“It was a tough settlement from Ofwat,” Mr Wray said, “but once we had answered the questions of whether we can deliver and whether we can finance it, we concluded the settlement was reachable and do-able.”
Job losses may follow, but he would not confirm any numbers.
Mr Wray’s decision not to challenge Ofwat puts the spotlight on three water companies that have yet to agree with the regulator’s ruling on their prices.
No water company has ever challenged Ofwat to a Competition Commission review on the regulator’s five-year price-cap determination. Announcements are expected over the next week from Thames Water, Southern Water and United Utilities, the supplier to North West England.
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For Mr Wray’s part, he must now get on with, in time, borrowing around £900 million to help the group to spend the £2.5 billion it needs to shore up Midlands’ water networks. So will that be the end of floods that have blighted his region? “The Gloucestershire flood plain is the Gloucestershire flood plain,” he said, inscrutably. “It floods.”