Water bills to fall much less than expected

By Ben Deighton and Victoria Bryan

LONDON (Reuters) - Water bills will barely fall during the next five years, disappointing recession-hit consumers and reassuring water companies who had feared the regulator would force them to make big cuts.

Regulator Ofwat sets the amount water companies operating in England and Wales can charge their customers every five years, and rules how much the companies are allowed to make from their investments.

By 2015 bills will fall by 3 pounds to 340 pounds on average, Ofwat said on Thursday. In its draft ruling in July, the regulator shocked water companies by calling for an average cut in bills of 14 pounds.

Shares in Pennon (PNN.L), Northumbrian Water (NWG.L), Severn Trent (SVT.L) and United Utilities (UU.L) rose by between 3 and 6 percent after the ruling, making them among the top gainers in London .FTSE.

Analysts had said that a harsh ruling could have forced the companies to cut dividend payouts and turn to shareholders to raise funds to maintain their balance sheets.

Evolution analyst Lakis Athanasiou said on Thursday that Pennon and Northumbrian were now unlikely to cut their dividends. While he expects reductions in the payouts for United Utilities and Severn Trent, he said neither would now need a rights issue.

The final price ruling is still about 10 percent lower than the amount that companies in the sector had originally wanted to charge.

The Consumer Council for Water said it was concerned that the watchdog had eased off on efficiency targets, which it said could lead to higher bills for some customers.