WATER COMPANIES this week warned that spending on infrastructure renewals may have to be slashed to free up funds to meet the Government's new water quality improvement targets.
The companies also threatened to refer their case to the Monopolies & Mergers Commission if they did not agree with water regulator Ofwat's water pricing limits to be set in October.
The threats followed publication this week of the Government's water quality and pricing objectives for the next five years. Environment Minister Michael Meacher set an £8bn spending target for the water industry's massive five year programme to improve water quality by 2005.
However, water companies claimed that this target, which effectively limits the amount firms can charge users, was £2bn less than they had estimated.
Objectives set by Meacher include upgrading sewage treatment, improving sewer overflows and lead pipe replacement. He said it would be 'the biggest water quality improvement programme undertaken in this country.'
But Meacher also told the companies they must reduce water bills by 10%. 'We believe this [£8bn spending programme] is consistent with an average price cut in customers' water charges across the country of some 10%.'
Industry trade body Water UK claimed the true cost of the programme had been grossly underestimated. The companies are in the final stages of preparing five year strategic plans to be submitted to Ofwat on 9 April. Ofwat will set spending and cost limits in November.
Water UK complained that the Government was asking for bills to be cut while demanding more environmental improvements than ever. Water UK chief executive Pamela Taylor said: 'That's the kind of pressure which could lead to cuts in our investment and delay much of the work we'd hoped to carry out.'
The row follows a dispute in January when water companies claimed Ofwat's system of setting capital unit costs for standard items of work was unrealistic (NCE 7 January).
Water UK chairman Brian Duckworth said firms were 'stacking up these arguments for later in the year' in advance of action. 'Companies will look at the total picture and if they are not happy they have the final opportunity to review them.'
Ofwat said that companies were entitled to go to the MMC if they did not agree with the regulatory review. Director general Ian Byatt said: 'It is now my role to make sure that the water companies can carry out these functions and are able to finance them. I cannot say what the consequences for bills will be until I have received and considered the business plans'