Asked by: Baroness Bowles of Berkhamsted (Liberal Democrat - Life peer)
Question to the Department for Environment, Food and Rural Affairs:
To ask His Majesty's Government what assessment they have made of the level of gearing in water and sewerage companies; how they calculate gearing for the purpose of any official or internal statistics on the insolvency risk of water and sewerage companies; and whether they use equity or assets as a denominator when making any calculation o gearing.
Answered by Baroness Hayman of Ullock - Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs)
The gearing of water companies is reported by Ofwat in its annual Monitoring Financial Resilience Report. Ofwat requires companies to report gearing as net debt divided by Regulatory Capital Value.
Water companies are allowed to raise debt to fund the delivery of their services; this is normal practice across all parts of the private sector. At sensible levels, debt can be an appropriate way to fund investment for essential infrastructure over the longer term. However, we recognise some companies will need to take further steps to strengthen their financial resilience.
The Independent Water Commission has made recommendations around the financial resilience of companies. The Government’s full response to the Commission’s recommendations - including those around financial resilience - will be outlined later this year through a White Paper. The proposed reforms will then form the basis of a new water bill to modernise the entire system so that it is fit for decades to come.