Fresh job cuts are feared at United Utilities after the UK’s largest listed water company opted to accept the industry regulator’s tough new price limits for the next five years.
The company, which provides water and waste-water services to 7 million households in the North West, said yesterday that it would accept price limits that would lead to bills falling in real terms for customers.
The decision puts more pressure on Thames Water, which has criticised Ofwat’s decisions in the five-year price review, to say whether it will accept the regulator’s ruling. It has indicated that it will wait until January 26, the last possible deadline for an appeal to the Competition Commission, before revealing its decision.
Macquarie, the Australian bank that owns Thames, needs to inject more equity into the company to fund its huge capital programme, so many analysts believe Thames has nothing to lose by going to the commission.
Philip Green, chief executive of United Utilities, said: “We believe that, on balance, it is not in the best interests of our shareholders and customers to seek a referral to the Competition Commission.
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“This has been a genuinely tough settlement for us and the regulator has been tough but fair. It will be challenging but we think we can do it.”
Earlier this week Pennon, owner of South West Water, and Severn Trent said that they would not take their determinations to the commission.
Shares in United Utilities closed up 16½p, or 3.2 per cent, at 525p, as it surprised the market by making only a 12.5 per cent cut in the dividend, half the reduction that had been expected.
There was also relief in the markets that United Utilities was able to outline a number of operational and financing changes it had made to help achieve efficiency savings. The company has already shed 500 jobs this financial year, in anticipation of a tough settlement, and Mr Green said there would inevitably be more cuts, though he could not say how many.
The company has fixed the interest for 90 per cent of its £4.9 billion debt, at an average nominal rate of 5 to 5.5 per cent. At the same time, it has cut the cost of serving each customer from £23 to £19. Mr Green even raised the possibility of outperforming its regulatory targets in some areas.
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Its will pay a total dividend of 34.3p a share for this financial year, but will cut it to 30p for the next 12 months.
The company will spend £3.6 billion improving the water and waste-water infrastructure in the North West in the next five years, against the £4 billion it had wanted to spend. By 2015 the average bill will have fallen by £9 compared with today’s prices.
In November, United Utilities sold its minority stakes in Northern Gas Networks and the Manila Water Company, realising about £130 million. It plans to sell its last non-regulated businesses in the UK, Australia and the Middle East, which could raise another £270 million and turn it into a pure water company.