Water firms to challenge Ofwat

OFWAT could face a wholesale challenge to its credibility this week with as many as four major water companies believed to be considering taking the industry regulator to the Competition Commission if it insists on keeping a lid on price rises.

If the companies, likely to be led by Thames Water, go through with a referral to the Commission, householders already facing massive increases in their water bills could be in for months of uncertainty and end up with even higher prices to pay.

Ofwat has already indicated that customers of the majority of the country's 10 major companies should be bracing themselves for rises of between 15% and 20% on average.

The companies, which over the past five years have been forced to cut operating costs to handle previously-enforced price cuts, have been demanding that Ofwat looks again at urgent capital spending on the country's leaking Victorian water mains, its sewage system, in which cases of foul flooding have been increasing, and on new environmental requirements brought in by Brussels directives.

German-owned Thames is believed by many to be ready to take the regulator to the Commission. It says Ofwat has cut its capital spending plans from £4bn to £2.7bn to ensure average bills do not rise by more than 18% to an average £248 a year. Thames says numerous problems in the capital - not least an abysmal record in which 40% of its available water is lost in leakage every year - means it needs bills to rise by 40% to overhaul its creaking infrastructure.

It is understood United Utilities, AWG and Severn Trent could follow Thames by rejecting the ruling of Ofwat chief Philip Fletcher. Anglian Water operator AWG has been hit by the toughest interim indication, being allowed to increase its prices on average by just 3%.

North West Water operator United Utilities and Severn Trent say their average 16%-to-17% rises do not go far enough.

All three companies - which are understood to have filed strongly-worded representations to Ofwat - face slashing their dividend payments to shareholders if they cannot raise enough money from customers.

While the companies are in a self-imposed purdah prior to Thursday's rulings, sources have talked of a breakdown in infrastructure similar to that which brought down Railtrack.