United Utilities, the FTSE 100 water giant supplying almost seven million people in the North West of England, has warned that it could face difficulties in financing the upgrading of old pipes, if regulators fail to adjust water prices with the impact of the credit crunch in mind.
When it sets prices for 2010-15, industry watchdog Ofwat has been urged by United Utilities to take into account the rising financing costs for infrastructure that it will have to absorb.
Next year, the industry regulator is due to set the level of return that players in the water sector can make, and the companies have to submit detailed business plans in advance.
Philip Green, CEO of United Utilities, has pointed out that water companies could face problems in upholding positive credit ratings, if the regulator fails to heed their concerns. Furthermore, he argued that the financial crisis has made it impossible for water ventures with downgraded credit ratings to raise the cash needed to replace pipes or tackle floods.
‘The current turbulent financial markets,’ opined Green, ‘make it doubly important to maintain strong investment-grade ratings.’
A first plan submitted in August by United Utilities predicted that water prices should rise by an average of 2.7 per cent annually between 2010 and 2015.
Ofwat says it will arrive at its decision based on the ability of companies to be efficient and offer value for money. ‘We’ll set price limits at a level that will enable an efficient company to deliver the right outcomes at the right time,’ it said in a statement.
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