Northumbrian Water stems tide of price rises - 7 June

Northumbrian Water will take the unusual step of not raising its water bills as much as planned over the next three years, which will result in its customers being charged £22m less than expected.

John Cuthbert, managing director, said that water bills for its 4.3m customers in north-east and south-east England would only rise in line with inflation between now and 2010.

Ofwat, the water regulator, allows water companies to charge a certain amount more than inflation to fund investment in water and sewage infrastructure. These increases in bills have helped UK water groups achieve record profits over the past few years.

However, Mr Cuthbert said Northumbrian Water had "a strong financial standing" and enough funding for its capital expenditure plans up to 2010 thanks to the issue of two £100m index-linked bonds.

He said Northumbrian's customers in north-east England, who receive water and sewage services, would be charged £6 less per year, and customers in the south-east, where Northumbrian only provides water, would be charged £3 less per year.

The company also released its full-year results yesterday, which came in slightly ahead of expectations.

Revenues rose 7.1 per cent to £633.5m, while pre-tax profits increased 13.4 per cent to £147.8m for the year to the end of March.

Mr Cuthbert said the rise in profits mainly came from higher water bills, but efficiency gains also played a part.

The group's energy costs rose sharply in the past year, from £25m to £33m, he said, and the bill for 2007-08 was likely to be approximately £27m.

To cut energy costs and help reduce carbon emissions, Northumbrian Water is looking at ways of increasing energy efficiency across its network and at generating power from sewage gas.

The board proposed a final dividend of 7.52p, taking the full-year total to 11.27p, a rise of 6.7 per cent.

Shares in Northumbrian Water have risen strongly in recent weeks on takeover speculation, but fell 2.5 per cent to 333p yesterday following analysts' comments that UK water stocks were overvalued.