Ofwat savages Severn Trent

The water watchdog, Ofwat, yesterday launched a public assault on one of the biggest privatised water companies, Severn Trent, for failing to meet its investment targets by pounds 100m in just two years.

The tough criticism of Severn Trent's investment spending, in a published letter from the head of Ofwat's central customer service committee, comes as Ian Byatt, the industry regulator, is starting work on a comprehensive review of the companies' five-year price limits, brought forward following widespread concern that they were too generous.

Mr Byatt is also expected this month to name individual companies that have failed to invest the sums laid out in the controversial existing price formula, which allows bills to rise by more than inflation to fund huge capital spending programmes.

He is likely to ask some companies not to raise bills for the financial year starting in April by as much as the price regime would allow, though Ofwat has no power to force them to comply.

The letter, from Clive Wilkinson, who chairs the Ofwat customer committee, to Brian Duckworth, managing director of Severn Trent's main water business, claimed the company had spent pounds 300m on investment in 1995, while the price cap allowed for spending of more than pounds 400m. Though investment last year rose to pounds 410m, this included outside grants, which meant Severn Trent had underspent by around pounds 100m in the first two years of the five-year price formula.

Mr Wilkinson also savaged the company's decision to boost discretionary investment by a total of pounds 244m. He said: "What you were doing is replacing planned expenditure, which you are underspending, with so-called additional expenditure. The effect will be that Severn Trent will not spend a penny of additional expenditure over the five years."

He described as "outrageous" the idea that the company would ask customers to pay a rate of return on the pounds 244m in the next price review currently under way. The letter said any reductions in investment should be shared with customers as well as shareholders. Though Mr Byatt has refused to reveal which firms could be asked to limit price rises, the letter raised the prospect Severn Trent could be on the list.