Capital investment levels in the water industry last year (1998-99) continued at record levels and industry operating costs fell in real terms compared with recent years, according to a new report published by Ofwat today.Ofwat's report on the industry's financial performance and
expenditure in 1998-99 reveals that many water and sewerage companies are continuing to show that they can become more efficient than expected - and improve services to customers while also reducing expenditure.
It shows where money has been spent and how the large capital
investment programme is financed. It also compares company performance with the regulator's assumptions when price limits were last set in 1994.
Director General of Water Services, Ian Byatt, said:
"The companies are continuing to reduce costs as they become even
more efficient than was expected.
"The benefits of those efficiencies will be passed to customers in new price limits for the period 2000-2005 to be announced in November. I published drafts of these in July.
"Service to customers is also generally improving. I will report fully on that in my Levels of service report later this month."
Capital investment has remained at a high level in 1998-99, totalling 3.7 billion (pounds sterling) for the year. This is higher than the average annual investment since privatisation - and far higher than before privatisation. Some companies are achieving greater capital efficiency savings than the Director General had assumed.
Ian Byatt continued:
"As the result of companies' efficiency improvements, bills can come down in April 2000. Within the realistic price limits I have proposed, companies will still be able to finance a substantial environmental programme."
Other key points for 1998-99 in the report are:
- The trend in operating costs has been downwards in the last five years. Total operating costs are lower than projected in 1994 when price limits were last set - a reduction of 13% in real terms.
- Current cost operating profits marginally increased this year, but after adjusting for restructuring and other provisions, profits for the last four years have been broadly static.
- Dividends remained at a high level in 1998-99 due to special
dividends paid by a number of companies.
- Companies' spending exceeds income by 2.4 billion (pounds sterling). The industry has had to borrow to finance the shortfall. Net borrowing at 31 March 1999 amounted to 10.8 billion (pounds sterling).
- The companies' level of borrowing increased to accommodate the windfall tax. This affects their capital structure, not their price limits. The tax is not being, and will not be, borne by
customers.
- Service to customers is generally improving and will be reported in my forthcoming report on levels of service. All improvement programmes at treatment works and service reservoirs that were due for completion by the end of 1998 were completed on or ahead of schedule. Programmes due for completion after 1998 are all on schedule.
- The Environment Agency (EA) acknowledges the improvement made by companies against standards in discharge consents over past years. The capital programme is continuing to provide improvements to water quality. Most notably, bathing water quality in England is the highest since standards were set.
NOTE TO EDITORS
1. Copies of the 1998-99 Report on financial performance and expenditure of the water companies in England and Wales are available from Ofwat Library. Telephone: 0121 625 1373. Copies are also available from Ofwat's Thames Customer Service Committee, 2nd Floor, 15-17 Ridgmount Street, London WC1E 7AH.
www.open.gov.uk/ofwat/
Office of Water Services
Centre City Tower, 7 Hill Street, Birmingham B5 4UA
Water Industry Investment Continues at Record Levels as Companies Become More Efficient