BM50 Sutton E.s.bds

RNS Number:8503Q
East Surrey Holdings PLC
1 February 2002

                            East Surrey Holdings plc

                      STATEMENT REGARDING OFWAT AGREEMENT



East Surrey Water plc (SESW), the wholly owned water only subsidiary of East
Surrey Holdings plc, today announces an agreement with Ofwat which will result
in certainty in price adjustments for both the company and its customers.

Under the terms of its water supply licence SESW's price limits are increased,
or decreased, if certain specified costs outside the control of SESW differ
materially from the amounts allowed in its existing price determination. At
present, these costs are materially below the allowed amount. Therefore, SESW
has agreed with Ofwat an annual process whereby part of its price limits will be
deferred as long as actual costs are below the amount allowed. This process will
be in lieu of the formal Interim Determination of K (IDOK) included in SESW's
licence, but will achieve the same objective. The deferral in respect of 2000/03
will be 2.1%.

Under the agreement each annual adjustment proposed by SESW will be agreed with
Ofwat, and Ofwat retains the option of initiating a formal IDOK if agreement
cannot be reached.

Phil Holder, SESW's Managing Director, said,

" We believe that a process, that adjusts our prices in line with the
differences between estimated and actual costs without delay, is the best
approach. It means that our customers do not have to wait for a price reduction,
and it makes SESW's position certain."

                                     -ends-

Date: 1st February, 2002

For further information contact:
East Surrey Holdings plc               City Profile
Phil Holder, Managing Director         Simon Courtenay
Nick Fisher, Finance Director          Ed Senior
Tel: 01737-772000                      Tel: 020-7448-3244
Web: www.waterplc.com                  e-mail: simon.courtenay@city-profile.com

Notes


 1. In December 1999 SESW appealed Ofwat's price determination for the five-year
    period 2000 to 2005 to the Competition Commission. In August 2000 the
    Commission determined K factors (price increases relative to inflation) for
    the five years of -17.0, +3.8, +2.1,0,0. Included in the Commission's
    determination were allowances for specific costs the extent of which was
    very uncertain and beyond the control of SESW.

    The main elements of these costs were the cost (including the net loss of
    income) of customers opting to be charged by meter, the cost of replacing
    lead pipes, and the cost of increased bad debts resulting from the removal
    of water companies right to disconnect domestic customers for non-payment.
    In order to deal with the uncertainty of these costs, the Commission
    recommended a two-way Interim Determination of K (IDOK) process whereby the
    price limits could be increased or decreased if the actual costs differed
    materially from those allowed. Materiality is effectively a combined impact
    to the profit and loss account of more than 1% of turnover.

 2. The position in respect of a formal IDOK is that one could not be initiated
    until the autumn of this year. It would then adjust the price limit for 2003
    /04 and 2004/05. The adjustment would take account of differences that have
    arisen in 2000/01 to 2002/03 and would estimate differences for 2003/04 and
    2004/05. Under the agreement between SESW and Ofwat, the 2002/03 adjustment
    takes account of the differences that have arisen in 2000/01 and are
    expected to arise in 2001/02 and 2002/03. Later this year the adjustment in
    respect of 2003/04 will be announced. It will take account of differences
    expected to arise in 2003/04 and also include the differences between actual
    costs and the estimated costs included in the 2002/03 price adjustment.




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