FTSE 100-listed utility firm Severn Trent yesterday said that it has decided not to ask the regulator Ofwat for an interim review of its 2010-2015 price limits and will absorb any extra costs without passing them onto the consumer.
Severn Trent said these additional costs were in relation to the adoption of private drains and sewers, after ownership was transferred to the water companies in 2011. The firm said at the time of its full-year results in May that these additional costs totalled £25m.
“This is mildly negative for shareholders, but the increase in costs is not major so I don’t think it will make a huge difference,” said Clive Roberts, analyst at Standard & Poor’s.
The firm’s shares closed flat at £16.98.
Water companies have to undergo compulsory price reviews every five years, with the next cycle due to start in 2015.
Another utility firm Thames Water angered consumer groups last month by asking Ofwat for permission to increase prices by eight per cent next year, which would add around £29 to the average household bill.
A spokesperson from peer United Utilities told City A.M. that like Severn Trent, the company is not planning to apply for an interim price review and has absorbed the costs from private sewer ownership.
Severn Trent rejected a takeover approach in June from a consortium of investors – comprising Borealis, the Kuwait Investment Office and the Universities Superannuation Scheme – claiming it was not fair value.
A number of shareholders backed the rejection of the consortium’s final 2,200p per share offer, suggesting that 2,300p per share would have been more acceptable due to the increasing scarcity of coveted utility assets.