Severn Trent Water and United Utilities report next week in what (many would say belatedly) is a tightening regulatory environment for the water sector.
Seemingly out-of-control sewage pumping has seen Ofwat handing out some punishment with Thames and Southern Water this week told to rebate £80mln to customers for missing pollution targets.
Severn Trent and United Utilities weren’t cited, indeed the two listed companies were the best performers on Ofwat’s list earning themselves credits of £102mln and £24mln respectively.
But even if things are smelling relatively rosier for these two, headwinds are mounting.
Earlier this week, economists at law firm Fideres notified the Competition and Markets Authority (CMA) and asked it to investigate the 11 UK water companies on both competition and consumer protection grounds.
The firm estimated that households purchasing UK wastewater services have incurred damages of roughly £163mln since 2016 “as a result of the water companies abusing their dominant position”.
Compensation could be even larger, as the firm estimated that water companies have also overcharged households around £1.1bn for sewage removal services in the same period, for “sewage treatment services which they did not provide since the raw sewage was spilt rather than treated”.
North-based United Utilities has already warned (in September) that interim profits would be lower than expected due to a combination of lower consumption and higher interest charges on its index-linked debt.
With UK inflation hitting a 41-year high this week, the debt problem does not look likely to go away quickly and is offsetting the benefits of the sale of its renewable business.
Group revenue for the first half of 2022/23 is expected to be around 1% lower than the first half of last year (£932mln), the group said, with operating profits down from £333mln in the comparable period and the impacts spilling into the second half.
Half-year results are due Wednesday 23 November.
Severn Trent’s last update was in July, when it said had seen a good start to the year operationally and “continued to expect at least £50mln in customer ODI outperformance payments in this fiscal year.
“As expected, we are seeing the increase in operating costs, particularly energy and chemicals, outlined in our technical guidance”, it added. Severn Trent reports on Tuesday.
Shares in both United Utilities and Severn Trent have rallied recently, suggesting that investors think the problems are manageable.
UU is up to 1,012p from 828p at the start of October, with Severn Trent rallying to 2,685p from 2,213p over a similar period..