In a speech to industry delegates on Wednesday, Sonia Brown, chief regulation officer at Ofwat, said: “When companies put forward their proposals for the cost of capital in their business; there is a real opportunity for this number to start with a three.”
The cost of capital set in 2009 was 5.1 per cent but in September Brown said a 1 per cent fall with a range of plus or minus 0.5 per cent would reduce average bill by £4 to £25 per household each year.
However, Brown yesterday said water companies had the opportunity to put forward a cost of capital at the lower end of her proposed range.
“I could see at the time that companies could do better and I expect that companies will do better than that, given the opportunities presented by the current economic environment.
“With nominal bond yields down around 1.2 per cent since prices were set in 2009 and record low interest rates, I would like to think that in their business plans some – if not all – companies will go lower than that.” she said.
Brown also argued that bills could be reduced further with efficiencies from setting separate controls for retail and wholesale along with other changes such as a move toward Totex and water trading.
“What would bad look like in this space? If bills don’t go down and don’t explain to your customers why. Companies will lose the legitimacy of their customers and ultimately we will all lose the legitimacy of the sector,” she said.