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Ofwat notes today's announcement by United Utilities that it intends to launch a rights issue. Each company's management is free to choose its own capital structure. But we must ensure that customers continue to be protected and that companies remain capable of financing their present and prospective capital programmes readily and at reasonable costs. Commenting on the announcement, Philip Fletcher, Director General of Water Services, said: "We have said consistently that we see virtue in shareholder equity as a cushion against external events and as a spur to greater efficiency. Our aim is to maintain a framework where both the traditional equity model and highly leveraged structures can co-exist. We will watch the progress of the offer with interest." Ofwat has been in detailed discussions with United Utilities about an application for an interim determination of its price limits. We will consider the issues fully when the company submits its formal application in September along with the accompanying report from the independent reporter. In order to succeed with an application, the company needs to reach a threshold, expressed in net present value terms, of 10% of the regulated company's turnover. United Utilities has indicated to Ofwat that part of its application will relate to changes in the Construction Output Price Index relative to the Retail Price Index in accordance with its licence. The process by which this adjustment operates is set down clearly in the company's licence and the relevant information for the indices is already in the public domain. This element of the application is very unlikely to be disputed. We will take account of the difference between the indices in assessing an application. Ofwat will also consider possible countervailing notices that take account of revisions to outputs since 1999 that the company was funded to achieve, such as the lead communication pipe replacement programme. We will consult on our draft decision in November before reaching a conclusion in December. Until the company submits its formal application it is too soon to say whether it will reach the 10% threshold. Provided that the threshold is reached, the Director is obliged to grant an appropriate increase, which is consistent with his duty to act in a way which is best calculated to ensure that companies can finance the proper carrying out of their functions. Were a determination to be allowed, then the increase would apply to bills from April 2004. The outcome would be taken into account in the forthcoming periodic review of price limits, which takes effect from April 2005. Note to Editors: 1. The Director General of Water Services is the economic regulator of the water and sewerage companies in England and Wales. He exercises his powers in a way that he judges will allow them to carry out their functions properly, and finance them. WaterVoice represents customers' interests. MEDIA ENQUIRIES TO OFWAT PRESS OFFICE ON: 0121 625 1416/1496/1442 Out of hours enquiries to pager: 08700 555 500 water 503/509. Ofwat publications and press notices can be found on Ofwat's website at: www.ofwat.gov.uk  | ||||||
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