Utility Week

Utility Week 6th December

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Page 17 of 31

Finance & Investment This week Company proposes price rise above the rate of inflation despite half-year profit of £134.2 million Thames Water profits rise 19.2 per cent Thames Water, the only major water and sewerage company to propose a price rise above the rate of inflation in its PR14 submission this week, posted a 19.2 per cent increase in pre-tax profit to £134.2 million for the sixmonth period ended 30 SeptemPrepare to be bored: Thames Tideway Tunnel ber 2013 (2012: £112.6 million). According to its half-year results, Thames Water's turnover was up by 8 per cent in the same period to £976.5 million, due to annual bill increases and "higher consumption during the hot periods of the summer". The capital's water company proposed an average bill rise of £8 each year for the five years from 2015-2020 to pay for the £2.8 billion Thames Tideway Tunnel. Martin Baggs, chief executive of Thames Water, said the Thames Tideway Tunnel was a "must-do project" which would stop tens of millions of tonnes a year of sewage entering the tidal River Thames. "The current situation is simply unacceptable, which is why this project – developed over many years – has cross-party support and forms part of the government's National Infrastructure Plan," he said. Thames was the only major water company to propose above-inflation bill rises. The other companies proposed rises below or in line with the rate of inflation. Speaking after the submission of business plans on Monday, Ofwat chairman Jonson Cox said: "Our board made clear that current economic circumstances gave companies an opportunity to deliver falling bills in real terms over the coming five years while maintaining substantial ongoing investment." CM Water UU to discount bills after £29m gain United Utilities, the UK's largest publicly traded water company, has pledged to discount customer bills in 2014/15 as it reported underlying operating profit up almost £29 million to £343.2 million for the six months ended 30 September 2013 (2012: £314.7m). The water company's pre-tax profit for the same period more than doubled year on year, from £139.4 million to £335 million, due to one-off costs associated with restructuring in 2012. The company, which expects to invest at least £800 million in 2013/14, said it would not enact the full price increase allowed in the final year of the current regulatory settlement. Chief executive Steve Mogford said the rise in profit was down to "tight cost control". The company also saw a £30 million rise in revenue, to £853.3 million. United Utilities has proposed below-inflation bill increases for the 2015-2020 regulatory period. Heating GIB to back district heating projects The Green Investment Bank is planning to back district heating projects as interest in opportunities for renewable heat grows, climate change minister Greg Barker announced last week. Stock watch Severn Trent's share price fell this week despite its announcement of a 6 per cent increase in dividends. The company, which currently has the lowest water bills and has proposed a price cut in real terms in 2015-20, was suffering from the uncertainty created by the price review. Investor returns in water companies are expected to fall in the next regulatory cycle as Ofwat looks to squeeze the cost of capital. Deutsche Bank said: "All three listed water companies proposed significant cuts in allowed returns, given the lower cost of capital environment, compared to 2009. Pennon and United Utilities each proposed a cut in the base rate of return from 5.1 per cent vanilla real to 4.1 per cent vanilla real… Severn Trent proposed a 90bp cut to 4.2 per cent. These proposals compare to our assumption of a reduction in returns to 4.1 per cent." 18 | 6th - 12th December 2013 | UTILITY WEEK A £6 million grant unding f programme launched by the Department of Energy and Climate Change in September has already attracted more than £3.5 million worth of heat network projects, Utility Week understands. The GIB has yet to finance any projects in renewable heat, which is one of its "non-priority sectors". Speaking at the Heat 2013 conference in London, Barker said: "The Green Investment Bank has decided to look more actively at financing heat network opportunities. The bank is looking for refinance and new-build projects with both the public and private sectors." Energy Networks awarded innovation funding Ofgem has awarded £59.4 million to ten innovation projects from the energy network companies. The funds come from three competitions – the Low Carbon Network Fund, the Gas Network Innovation Competition, and the Electricity Network Innovation Competition – that offered up to £109 million to 16 projects that applied for the funding. One of the winners was Southern Gas Networks, which received £6.5 million of funding to go towards robotic technologies that will operate inside live gas networks to repair leaking joints. Severn Trent share price, November 2013 1850p 1825p 1800p 1775p 1750p 7 Nov 14 Nov 21 Nov 28 Nov

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