Dec 28, 2000

UK water companies urge maintenance funding probe

British water companies on Wednesday urged the incoming industry regulator to re-examine funding for maintenance projects, warning that the alternative was a sharp increase in the number of disruptive utility works.

Sir Ian Byatt, the current water regulator, retires next week and will be replaced by Philip Fletcher, former head of civilian administration for the Metropolitan Police Force.

Water UK, which represents all of Britain's water companies, said that although service levels had improved, regulation under Byatt had left the industry on the brink of a maintenance crisis. It called for Mr. Fletcher to be less combative than his predecessor.

"We believe the time is right to take a less confrontational approach and work together on a new agenda for the future," said Graham Setterfield, director of water services for Water UK.

Setterfield said there was a $3 billion shortfall in the amount of money water companies required over the next five years to stop their assets deteriorating. He warned that, without an increased level of investment, Britain would face a rising number of collapsed sewers and burst water mains.

Water UK made the comments at a think-tank in London for 70 representatives of the water companies, regulators, government and engineers.

Chris Binnie, vice chairman of Binnie Black and Veatch, the civil engineering consultant, said the meeting had been positive but warned there were only 18 months until decisions had to be made about the next regulatory review. Binnie said that at the current allowed rate of funding, sewers with a design life of 100 years could only be replaced every 500 to 1,500 years.

"The current system of maintenance funding is backward looking and takes no account of recently built assets. Unless more money is allocated maintainance will not be sustainable and costs could spiral out of control," he said.

An official at the water regulator's office said the fact that only two of the smallest water companies had appealed to the Competition Commission against the regulatory review showed that the system was fair.

"Water companies can apply for an interim regulatory review before the end of this five year period if they feel they have a case. The new regulator would, of course, look at that," he said.

Water UK's appeal came a day after Bryatt rejected a proposal by Kelda, the owner of Yorkshire Water, to sell its assets to a mutual company owned by its customers. Water companies believe price cuts imposed by the regulator have made them unattractive to equity investors and that new financial structures will be needed if they are to survive.

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