U.K. Water Profit Amid Tax Raises ‘Moral Questions’: Cox

The profits that water companies earn and tax structures they use to boost returns while consumer bills rise raises “moral questions,” the U.K.’s water industry regulator chief wrote in the Telegraph newspaper.

“I agree that the dichotomy between profits and the prices charged to customers raises business, regulatory and moral questions,” Ofwat Chairman Jonson Cox said in a commentary in the British paper.

Cox’s remarks came as Kemble Water Holdings Ltd.’s Thames Water unit, British’s biggest water company, today reported a 5.7 percent gain in annual revenue to 1.79 billion pounds ($2.8 billion) on pretax profit of 144.9 million pounds as bills rose 6.7 percent and said it paid no corporation tax in the year, its liabilities offset by investing in infrastructure and upgrades.

Privately held Thames Water, with 14 million customers mostly in London, said it contributed about 150 million pounds in other taxes and that bad-debt charges climbed 33 percent in the year to 93.7 million pounds. It cut its dividend to 231.4 million pounds this year from 279.5 million pounds.

The chairman’s comments come as the regulator prepares to publish next year the prices U.K. water companies can charge consumers for water and sewer services from 2015 to 2020. They also focus attention on an approach by a group including a Canada infrastructure investor and a Kuwait sovereign wealth fund to take over Severn Trent Plc (SVT), one of three remaining publicly traded water companies of the 10 largest in the U.K.

Industry Privatization

Cox, who held posts at Yorkshire Water parent Kelda Group Ltd. and led Anglian Water Group Ltd, said he’s reviewing how the watchdog regulates water utilities after privatizations changed the industry’s structure in the past six years. He said he would also press for improved governance for companies to comply with U.K. corporate governance code on tax structures.

“In our discussions with unlisted companies, we have yet to find a company that fully complies or satisfactorily explains why not,” he wrote.

Cox said some water utilities are taking out yearly dividends of as much as 24 percent of their regulatory equity and noted “morally questionable” aspects to utilities allegedly using shareholder loans to avoid U.K. taxation.

“Maintaining trust in this unique industry is a duty we all owe to government and customers,” he wrote.

To contact the reporter on this story: Sally Bakewell in London at sbakewell1@bloomberg.net

To contact the editor responsible for this story: Randall Hackley at rhackley@bloomberg.net

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