|
|
News CategoriesThis story is tagged with the following keywords |
Competition Commission ruling on Bristol 'will encourage companies to gear up' Water companies have warned the Competition Commission (CC) that its provisional findings in Bristol Water's appeal could encourage companies to increase gearing and result in equity leaving the sector. The CC has set allowances for tax based on a central assumption of gearing, whereas under Ofwat's methodology, these allowances are set according to each company's capital structure to discourage gearing up. Ofwat said the CC's approach meant "very much higher tax charges than we determined, which will be borne by Bristol's customers". Northumbrian Water chief executive Heidi Mottram warned: "It provides a clear incentive for all companies to gear up beyond the assumed 60 per cent." Severn Trent director of regulation Tony Ballance said: "Since tax savings from gearing up yield no overall social benefit, we consider that Ofwat's clawing back the benefit of tax savings is the minimum that should be done." Bristol Water itself is unhappy with the CC's ruling on cost of capital and the assumption of an equity injection. It said this would "inevitably lead to an undeliverable and unsustainable determination that will have wide implications across the sector". While CCWater said the cost of capital proposed was "appropriate", Northumbrian's Mottram said the CC's "underestimation may damage incentives for retaining equity finance in the sector". Ballance said that if Ofwat had set cost of capital at the same level as the CC, it could have led to a similar loss of market confidence as occurred in 1999. The CC must make its final decision by 6 August. Source: Utility Week © Faversham House Group Ltd 2010. News articles may be copied or forwarded
for individual use only. No other reproduction or distribution is permitted without prior written consent.
|
Highlighted Jobs |
|
|