Pennon Group PLC (LON:PNN) said it will not appeal to the competition watchdog over the how much its South West Water arm can invest and charge customers over the coming five years.
Another water company, Yorkshire Water, this week referred water regulator Ofwat to the Competition & Markets Authority after it imposed the strictest price controls across the industry seen since the privatisation of the water sector in 1989.
READ: Severn Trent, UU and Pennon dividends diluted by new Ofwat cap
Two more water companies joined the challenge, Anglian Water and Northumbrian Water, leading the CMA to say it will consider Ofwat’s proposals following the appeals.
It will almost certainly mean that the companies will need to slash their dividends paid to shareholders for the next five years.
As of next year, the allowed return on capital will be 2.96% for the whole business and 2.92% for wholesale controls without retail, with Ofwat saying if dividends are too high is would drive up water bills, while if they are set too low it could jeopardise the companies’ ability to raise finance on “reasonable” terms.
Pennon said, after “careful consideration”, it has made the decision not to refer the final determination published by water industry regulator Ofwat for the new regulatory price control period to 2025.
As a result, with its current dividend policy expiring this year, the FTSE 250 group said it will announce a new dividend policy as part of its full-year results in early June.
There have been press reports of late, following more last year, that Pennon is preparing to sell its Viridor waste management arm, with bankers appointed to manage the sale.
It turned down a £4bn bid from US private equity firm KKR a year ago.