Water shares improved on reports that regulator Ofwat wants debt-laden utilities to have potential fines for sewage dumping reduced to allow time for them to “recover”.
According to the reports, Ofwat intends to draw up a regime to enable water companies that need a major financial restructuring such as Thames Water to keep going but under tighter regulatory scrutiny.
Thames Water faces nationalisation if Ofwat rejects its latest plan to dig itself out of a £18 billion debt hole but under the new plan, it would receive lower pollution targets for five years while it attempts to right itself.
Southern Water, South East Water and Yorkshire Water might also be put on recovery measures, according to the reports.
Industry commentators have argued that swingeing fines and targets that struggling water companies have little chance of meeting would make the whole sector “uninvestable”.
Ofwat has already rejected calls for huge price increases from Thames Water shareholders, leading to a failure to raise £500 million in equity finance from its investors and its largest shareholder subsequently writing down the value of its holding to zero.
Labour is said to be looking at reforming Ofwat if it gets into power while the Liberal Democrats want it replaced with a new body.
Water shares rose on the report with United Utilities up 1.4 % and Pennon by 1% though Severn Trent was unchanged.