Shares in water companies rise after regulator rules they can increase bills by £19 a year

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

While Ofwat placed Thames Water into special measures – underscoring the crisis in the sector – shares in rivals Severn Trent rose 3.8 per cent, United Utilities 2.6 per cent and Pennon 9.7 per cent.

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

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

In a long-awaited update that casts doubt on the future of privately-owned Thames Water, Ofwat has outlined how much water companies will be allowed to increase their bills between 2025 and 2030.

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

Despite this, it was still better than many analysts had expected.

In a further boost, Ofwat praised Severn Trent and Pennon, owner of South West Water, for “excellent” business plans, while the plan for United Utilities, of which Louise Beardmore is CEO, was rated as “standard”.

According to Alexander Wheeler, an analyst at RBC Capital Markets, Pennon is benefiting “significantly” from the strong rating, especially given its recent weak share price performance.

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

Liv Garfield, who has been in charge of Severn Trent since 2014, is also under pressure over her high salary.

Last year she earned £3.2m, of which £2.3m was performance-related pay, taking her salary over the past four years to £13m.

But industry experts warned that companies will face financial pressure after their requests for bigger pay rises were rejected.

Aarin Chiekrie, analyst at Hargreaves Lansdown, said: ‘This setback is a major blow and means they will have to invest their money very efficiently if they are to meet any sort of regulatory requirements.’

Privately owned Thames Water warned this week it could run out of money next year if it does not get funding.