Ofwat backs down on water licence changes

LONDON (Reuters) - Britain's water regulator Ofwat backed down over controversial changes to make water company licences more flexible after the firms affected rejected the original proposals.

Ofwat, which oversees Britain's water and sewage operators, is trying to change licences to increase the flexibility it has over controlling water prices, but on Friday compromised on some of those changes.

Pennon Group and United Utilities Group both welcomed the move which means that any future amendments to licenses will have to go through a separate process.

"It's a compromise by Ofwat and its going to be received very positively by the markets," said Dominic Nash from Liberum Capital, who has a "buy" rating on United Utilities and Pennon.

Shares in British water companies gained and were amongst the top risers in Britain's bluechip index. Severn Trent was up 1.4 percent, United Utilities was up 1.4 percent and Pennon rose 0.6 percent in mid-morning trading.

The UK water sector has fallen 10 to 20 percent since the October announcement, according to Nash.

In a bid to increase efficiency and transparency at Britain's water companies, Ofwat gave water companies four weeks in October to accept proposals to make price-setting more flexible or be referred to competition authorities.

The majority of firms, 16 out of 25 written responses received by Ofwat, rejected the idea, saying that it created unnecessary uncertainty for investors.

Currently Ofwat sets five-year price limits by targeting how much revenue firms can make according to a formula which accounts for inflation.

The coalition government committed to opening up competition on the retail side of water companies in its draft water bill published in July.

(Reporting By Christine Murray; editing by Sarah Young)

Source: http://news.yahoo.com/ofwat-backs-down-water-licence-changes-112050433--sector.html

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