Bill cuts will drain Thames Water payout

THAMES WATER would be forced to abandon paying a dividend altogether if the water regulator does not alter its push for lower bills.<br /><br />The UK&rsquo;s biggest water supplier has informed its owners, Macquarie Bank of Australia and a range of pension funds, that they face missing out on a &pound;200m return next year, a source close to the company said.<br /><br />The company does not believe it can retain current levels of service and investment if Ofwat pushes ahead with a draft pricing plan that would cut typical bills in England and Wales by &pound;14 to &pound;330.<br /><br />Thames Water management, led by David Owens, and shareholders are said to be livid that Ofwat&rsquo;s final plan, to be unveiled on Thursday, could derail its &pound;5.5bn five-year capital spending programme, the cornerstone of which is the complete replacement of London&rsquo;s 150-year-old water and sewerage network.<br /><br />Listed water companies like Severn Trent and United Utilities would also have to reduce payouts to their shareholders to protect capital, experts warned yesterday.<br /><br />Goldman Sachs analyst Fred Barasi told clients that both companies would be forced to reduce payouts by 20 per cent.<br /><br />There is a gulf in what Ofwat believes is fair and water companies believe they deserve to maintain services. For example, United Utilities wants to charge customers &pound;404 a year by 2014, while Ofwat&rsquo;s draft proposal is that it should be &pound;359.<br /><br />Depending on a big turnaround from Ofwat on Thursday, the process looks headed for the Competition Commission, the final place for appeal available to the utilities.<br /><br />Northumbrian Water yesterday warned that its future profits hinged on the decision by Ofwat.<br /><br />Managing director John Cuthbert said the five-year price plan was the &ldquo;key risk&rdquo; to Northumbrian&rsquo;s business.<br /><br />Northumbrian added that higher prices over the six months to September had offset difficult trading conditions as pre-tax profit rose 12.8 per cent to &pound;87m.