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United Utilities (UU) could face costs of between £20 and £25 million, and an Ofwat-imposed penalty of £20-£22 million, following severe flooding after weekend storms, analysts have said.
An analyst at RBC Capital told Utility Week the costs of clean-up and overtime would be higher than the £25 million costs paid by UU for the cryptosporidium incident August.
On top of this, he said, UU could be penalised a further £20-£22 million by the regulator as part of its outcome delivery incentives (ODIs), which are rewards or penalties given to companies depending on how they perform on certain commitments, for example sewer flooding.
An Ofwat spokesperson said that it was too early to say whether UU would be penalised for this incident, adding that such penalties are set over the long term, rather than for specific incidents.
“The penalties and rewards are agreed upfront, but some of them may have conditions,” he said. “For example, there are performance commitments that do take into account things like extreme weather as a mitigating factor.”
UU was unable to comment on the expected costs of damage, and Angelos Anastasiou, utilities analyst at Whitman Howard, told Utility Week it is “very difficult” to come out with accurate figures because it’s “too early” for the company to be giving guidance.
However, he said an “early guess” would be up to £20 million in additional costs. The majority of these, he said, would be extra costs in attempting to keep supplies flowing at affected properties, coupled with extra repair costs.
The company’s share price fell nearly 3 per cent last week, from 983.50 pence at midday on Thursday 3 December to 956.50p the same time on Friday 4 December when the storm hit. The price then fell to a low of 943p on Tuesday 8 December at 10:00am.
UU and distribution network company Electricity North West worked “around the clock” over the weekend to restore water and power supplies to thousands of people across Cumbria and Lancashire, while the government convened an emergency Cobra meeting in a bid to restore power and water to affected communities.
Prime Minister David Cameron has promised to review flood defence spending. But environment sectretary Liz Truss has defended the government’s flood spending, insisting its six-year £2.3 billion investment in new flood defences, announced last year, will protect an additional 300,000 homes and reduce flood risk.
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