UK Water Investment

  Wilham 12:48 06 Feb 09
Locked

The UK distribution of mains water via reservoirs and pipes needs upgrading to cope with possible periods of dry weather and drought. How can this improvement be paid for?

If nothing is done before standpipes are fitted, the only source of capital I can see will be government, which then will attempt to recover the unexpected investment by imposing a levy on household water bills (say 10%) over the next umpteen years.

This may be the only answer. If so, how could it avoid becoming a hidden subsidy to shareholders in water companies?

Or should we just wait for a long spell of dry weather?

  oresome 12:57 06 Feb 09

The money will come from the private sector.

Utility companies are solid businesses with a more or less guaranteed cash flow so should have little difficulty in raising capital.

United Utilities for example offers me a far greater return in dividend payments than the banks do in interest at the moment.

  wee eddie 13:04 06 Feb 09

First batch should be those with Swimming Pools.

Second Batch should be those in Houses with more than 4 Toilets.

Third Batch should be those in Houses with more than 4 Bath/Shower Rooms.

Then those that wish to water their garden.

I don't believe that any of those groups could produce satisfactory arguments against Metering.

Thereafter, I leave the categories to your imagination, but all business Premises should have been close to/at the top of the list.

  wids001 15:01 06 Feb 09

My concern with meters is that the charges will go up and up and up as consumption is forced down.

At present most water companies know roughly what income they will be getting from the water rates - a set figure irrespective of the amount of water used.

Give everyone a meter and consumption will fall, so will their profits. Answer = price increases.

A vicious circle ....

  Wilham 15:31 06 Feb 09

oresome
'United Utilities for example offers me a far greater return in dividend payments...'
Could that not simply indicate customers of the companies in United Utilities are paying more than they should? (It couldn't be much worse than the banks.) Look today at the P/E ratio.

fourm member
Your link is published by the water companies. I accept figure £80B could be capital investment over the years. But at some time it has come from the pockets of customers.

  oresome 16:18 06 Feb 09

Wilham,

I have held UU shares for over 3 years. The annualised return on my investment has been 3.03% during that time. Quite modest I would have thought and in no way indicating that the customers are paying more than they should to shareholders.

  Wilham 18:55 06 Feb 09

fourm member and oresome
I think I can show you another aspect of oresome's utility shares. The UU share price given in this mornings D Tel business section is 563, with yield 7.5% and Price/Earnings figure a high 24.0
The P/E figure shows shows the 7.5% could likely be higher, but the directors have put more cash aside for reserves. The 7.5% is lower than oresome's 3.03% return, partly because the shareprice, as elsewhere, has recently dropped in price.
The available money held back from dividends increases the company's asset value, and this in turn will be reflected in the share price. The real return on oresome's UU shares must include the change in value of his portfolio. In normal times this could considerably exceed his dividend return.

Now here's the problem. Let's say a new reservoir is needed at a cost £2billion. The Water Company allocates 15% of its income to a fund which, in time, finances the land purchse and builds the spanking new reservoir. Is it the property of the shareholders in the company that has paid for it?

  oresome 19:28 06 Feb 09

"The real return on oresome's UU shares must include the change in value of his portfolio."

The annualised return I quoted takes account of both capital changes in the share price since purchase and the dividend income to date. Capital value has in fact fallen 18.5% since purchase.

I cannot agree that in normal times the share price will increase at a faster rate than dividends. The opportunities for a utility to expand it's business are very limited without the risks attached to the acquisition of other businesses. Price increases are strictly regulated and the business is capital intensive. Utilities are considered a safe bet in difficult times, but will underperform when the market recovers.

As regards the question posed, the reservoir is owned by the shareholders. Why would you think otherwise?

  peter99co 20:28 06 Feb 09

Give everyone a meter and consumption will fall, so will their profits.

I have had a meter and have not reduced my consumption at all but I am paying a third of what I used to pay. I have therefore paid to much for some years.

If they up the price I will have to cut back on my use.

  laurie53 21:06 06 Feb 09

I have never been able to understand why gas and electricity usage is measured and water is not.

  Wilham 21:11 06 Feb 09

oresome
Thanks for your interest. I guess you have been unlucky with utiliy shares. I had the free issue when services were floated as private companies. I think most were worth about a pound each and the elecrticity grid shares are today £6.50, that's an increase of 550%,.... less when compounded, I know, but another example, Anglia water, was bought up when shares had risen to about that same level. I think I'm right the tax-free capital gain was better return than the share dividend, especially for higher rate tax payers.

Capital gains tax clicks in at about £7500 pa, and there's room for a capital growth element with all companies.

You last question floors me. Place yourself as a householder who is told that £300 pa on average is required from every home for the next five years to fund a new, urgently needed reservoir. Which of the following two schemes would you prefer?

(1) The money is collected with your council rates and the new reservoir will be in public ownership.

(2) The money is collected as part of your water bills, and at the end the reservoir belongs to the company shareholders.

Does this answer your question?

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