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Water Companies

Volume 449: debated on Wednesday 19 July 2006

To ask the Secretary of State for Environment, Food and Rural Affairs what the projected rate of return on capital allowed under agreed plans for 2005-10 with Ofwat is for each water company; and what rate of return on capital was achieved by each company in each of the last five years. (81090)

Ofwat publishes pre-tax rates of return—measured as operating profit as a percentage of regulatory capital value—in its annual report “Financial performance and expenditure of the water companies in England and Wales”. Post-tax returns have not previously been published. The figures in the table have been calculated as operating profit less current tax, as a percentage of regulatory capital value.

At the 2004 price review, Ofwat set a real terms post-tax return of 5.1 per cent. When comparing this to actual returns the comparable rate is the “Vanilla WACC (Weighted Average Cost of Capital)”. This is on a real basis and assumes a pre-tax cost of debt and post-tax cost of equity—on this basis the return that Ofwat set was 5.8 per cent.

Water only companies were allowed a premium on the return of 0.3—0.9 per cent.

At price limits, Ofwat takes companies’ particular levels of debt into account before allowing for tax.

Post tax return

Percentage

2000-01

2001-02

2002-03

2003-04

2004-05

Anglian

5.1

6.2

4.0

6.4

5.5

Dwr Cymru

5.4

5.9

4.6

4.1

4.6

Northumbrian

5.9

6.3

5.2

4.6

5.6

Severn Trent

7.0

6.9

6.1

6.1

5.9

South West

6.7

6.5

6.5

6.2

4.8

Southern

6.1

5.2

5.1

4.2

5.0

Thames

3.4

6.7

6.3

5.4

5.6

United Utilities

5.7

6.0

5.7

6.0

6.5

Wessex

6.9

6.7

9.1

7.7

7.1

Yorkshire

5.6

6.4

5.9

5.4

6.0

Bournemouth and West Hampshire

4.8

5.5

4.7

4.7

5.2

Bristol

6.4

6.4

6.6

6.1

4.0

Cambridge

5.5

6.4

7.4

23.0

9.0

Dee Valley

8.4

8.4

5.1

7.2

8.6

Folkestone and Dover

9.4

9.3

8.1

6.3

7.4

Mid Kent

5.9

6.9

3.1

6.9

6.4

Portsmouth

9.8

8.6

6.4

6.6

6.3

South East

6.8

6.5

6.3

5.1

2.5

South Staffordshire

7.1

6.6

7.5

6.5

6.8

Sutton and East Surrey

6.3

9.9

10.9

6.6

9.6

Tendring Hundred

6.4

6.9

5.9

6.6

6.7

Three Valleys

6.1

6.3

5.1

3.8

6.3

Industry

5.6

6.3

5.7

5.7

5.7