United Utilities (UU) and Severn Trent (SVT) gained a clearer vision of their business plans last week after Ofwat released its final determinations. The water regulator’s proposals determine prices utility companies can charge consumers and provide detail on the regulatory framework for the next five years.
Analysts expect Severn Trent and United Utilities to announce their updated dividend policies within the next two months. Pennon Group (PNN), owner of South West Water, was the clear winner of the process after receiving enhanced status from the regulator. This meant it received its draft determination in April and its business plan was unchanged.
But United Utilities defied expectations the most. The group had been concerned about the significant gap between its estimates for spending and Ofwat’s. Total expenditure for the group’s wholesale wastewater business plan had been £769m more than that suggested by the regulator in its draft determination, coupled with a £215m gap for the water segment. But this gap has now shrunk to £179m and £9m respectively. Analysts at Deutsche Bank had expected a gap of £330m following the final determination. Shares in the group rose by almost 4 per cent following the announcement.