WATER COMPANIES PLAN PRICE INCREASE

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Three senior officials with control of financial and regulatory affairs who are involved in an investigation into overcharging at Severn Trent, are quietly being offered early retirement. In 2004, chairman David Arculus and chief executive Bob Walker both left. Arculus is now chairman of mobile group 02 and Walker became chairman of WH Smith. The managing director of Severn Trent, Brian lluckworth, also left. Same old story, screw up and walk away with your pockets lined with gold.

Ofwat contacted the Serious Fraud Office who began an investigation into Severn Trent Water after allegations from David Donnelly, a former finance manager for Severn Trent. Mr Donnelly claimed the company had overcharged its customers by £50m. The allegations concern fears the water company provided unreliable information, particularly accounting inaccuracies, to Ofwat. In November 2004 the company announced it was taking the view that the matters raised had no effect on the integrity of its accounts and that customers had not been overcharged.

Ofwat began its own investigation in January 2005 and the matter was reported to the SFO regards information over leakage. An Ofwat spokesman said, "It is very important information which companies submit to Ofwat is reliable. Ofwat therefore takes very seriously instances where this may not be the case. The SFO has concluded the matter is sufficiently serious to warrant a separate investigation by them."

Severn Trent Water apologised to customers after a series of errors led to wrongly inflated bills. Industry regulator Ofwat said poor internal processes and controls led to the incorrect income data, costing consumers £40million, while deliberately miscalculated bad debt data added £2million as part of a separate price review held in 2002.

Severn Trent said it had begun to put the matter right by raising prices £7million less than allowed under 2006-07 price limits. A rebate averaging £2 to £3 a year per customer will follow over the next three years. Chief executive Colin Matthews apologised unreservedly for the errors which "unintentionally led to price limits for the period 2005-2010 being set too high". (Source: The Sun, Mar/06)

Water bills are set to rocket by up to 74%. The rises are set out in the water companies' draft business plans being scrutinised by Government watchdog, Ofwat. If the plans get the green light, the average household bill will go up by around 30% a year over the five years to 2010. The increases, which start coming into force in March 2005, will vary from region to region. Tony Blair now faces a council tax-style revolt over the proposals. Meanwhile fat cat bosses, dubbed the Water Rats, are living in luxury on £500,000-a-year pay packets.

The massive increase has been blamed on Britain's crumbling water and sewage system. But outraged industry watchdogs have criticised water companies for profiteering at bill payers' expense. Peter Bowler of Water Watch said, "The water industry treats its customers as a cash cow. The arrogant and aggressive attitude of the water industry beggars belief." Consumer group WaterVoice added, "The increases seen in the water companies proposals risk turning people against the water industry. The companies have to be more realistic about what people can afford to pay."

In 2003 Britain's top 10 water companies made pre-tax profits of £1.3billion. The industry is planning a £21billion investment programme over five years. Water UK says companies need to replace one third of their pipes and could no longer rely on "patching up" their network. A spokesman said, "These estimated bills represent good value for money. "The average household increase would work out at around 30p a week." Severn Trent boss Robert Walker was paid £493,000 in 2003, despite the company's shares underperforming.

Average household water bills in England and Wales can rise by £46 to £295 a year by 2009, the industry regulator Ofwat has said. The 18% increase is larger than expected, although the figure falls short of the 29% increase demanded by water companies. Water firms say the extra cash is needed for maintenance and improvement work and environmental projects. Consumer bodies say help must be given to those already struggling to pay.

"These decisions... will enable water companies to meet the needs of customers and the environment while continuing to deliver a safe and reliable service," Philip Fletcher, director general of Ofwat's water services said in a statement. But he admitted that the increases would be unwelcome, "especially to customers on low incomes".

Maurice Terry of consumer body WaterVoice said millions of water customers would find the increases neither affordable nor acceptable. "The government must act immediately to ensure that customers on low and fixed incomes receive effective help to pay their water bills, through the mainstream tax credits and benefits system," he said.

Ofwat, in a draft proposal, said bills would rise by 13% but after listening to customers, consumer bodies and water companies, the watchdog decided a bigger rise was necessary. "In particular, more investment is needed to prevent internal flooding of homes, as a result of overloaded sewers," an Ofwat spokesperson said.

Ofwat also said the increase was needed so pipes and treatment works can be maintained. The body added that 3,000 schemes to improve rivers and coastal waters and 500 investigations to inform decisions on future and environmental protection would also require additional funds.

Derby has been named as one of 30 Severn Trent sites in the Midlands which will play a part in a £16m scheme to generate green energy from sewage. By 2005, the water firm will be generating 13% of its energy from combined heat and power (CHP) digesters, at sites including Derby, Alfreton, Burton and Uttoxeter. The Severn Trent scheme will make it the biggest generator of energy from sewage in the UK, with enough green energy being produced each day to power a town the size of Gloucester. The investment in CHP digesters will reduce carbon emissions and reduce overall reliance on fossil fuels.

Severn Trent Water managing director Brian Duckworth said, "Government renewable energy targets are for 10% of energy used by 2010. This development exceeds that." The Derby sewage works in Megaloughton Lane, Spondon, have been a constant thorn in the side of residents, who claim an unpleasant odour comes from the site, particularly in the summer. Steve Hodgson, spokesman for Severn Trent, said the residents need not fear any worsening of the "Spondon pong". He said, "The source of the smell was to do with an old process that has since been rectified. It is not an issue with CHP."