Water company shares soar as regulator rules they can raise bills by £19 a year

More than £650m was added to the value of listed water companies yesterday, even as regulators ruled that bills will not rise as much as the industry had hoped.

As Ofwat put Thames Water into special measures, underlining the crisis gripping the industry, shares in rivals Severn Trent rose 3.8 per cent, United Utilities added 2.6 per cent and Pennon rose 9.7 per cent.

The gains added £652m to the value of the three listed water companies, suggesting the regulator was not as harsh as feared.

Most are privately owned and not listed on the stock market.

In a long-awaited update that casts doubt on the future of privately-owned Thames Water, Ofwat has set out how much water companies can increase bills between 2025 and 2030.

An average annual increase of £19 a year over the next five years was proposed, a third less than the increases of around £29 that businesses wanted.

Nevertheless, it was better than many analysts expected.

In a further boost, Ofwat praised Severn Trent and Pennon, which owns South West Water, for their “excellent” business plans. The plan for United Utilities, whose chief executive is Louise Beardmore, was rated “standard”.

RBC Capital Markets analyst Alexander Wheeler said Pennon was a “significant beneficiary” of the strong rating, especially given its recent weak share price performance.

It was also a much-needed shot in the arm for Pennon boss Susan Davy, who gave up £440,000 in bonuses last year after being fined more than £2m for illegally dumping sewage into rivers and the sea in Devon and Cornwall.

Liv Garfield, who has run Severn Trent since 2014, has also been under pressure over her high salary.

He earned £3.2m last year, including £2.3m in performance-related payments, bringing his salary over the past four years to £13m.

But industry experts warned that companies will feel pressure on their finances after their requests for further increases were rejected.

Aarin Chiekrie, an analyst at Hargreaves Lansdown, said: “The setback is a serious blow and means they will have to invest their cash very efficiently if they are to have any chance of meeting the regulator’s demands.”

Privately-owned Thames Water warned this week that it would run out of money next year if it failed to secure funding.