UK water stocks rise as Ofwat extends olive branch

Published December 21st, 2012

Shares in United Utilities and Severn Trent outperformed a sluggish FTSE 100 index today after Ofwat, the economic regulator, bowed to pressure and extended an olive branch to UK water companies by launching a new consultation on its proposed licence changes.

The revised proposals “reflect a compromise between previously diverging views of the UK water industry and its regulator”, and “are a sign of a more pragmatic and possibly less confrontational approach,” noted Moody’s analyst Stefanie Voelz.

The latest modifications would maintain the RPI+K formula for calculating wholesale prices, but crucially do not seek any flexibility to adapt wholesale price controls at this juncture, removing much of the previous uncertainty. In addition, Ofwat announced that a dual price control process for retail and wholesale activities will be conducted at the next price review in 2014.

Companies now have until 23 January 2013 to decide whether to accept Ofwat’s revised modifications.