WATER watchdog OFWAT has pulled the plug on a plan to make the assets of Yorkshire Water a "mutual" company.

A proposal last month by Yorkshire Water's parent company Kelda to separate and sell Yorkshire Water's assets into a community-owned Registered Community Asset Mutual has been rejected as "not acceptable."

The deal would have returned any excess capital to shareholders.

As a result, Kelda today withdrew its proposal but now plans to "seek an acceptable way forward".

Sir Ian Byatt, director general of Water Services, ruled that the restructuring cannot go on in its present form.

He said that the present equity-based system had worked well in delivering savings to customers, as had a major programme of environmental improvements, and infrastructure investment.

The claimed £10 million savings a year to benefit 1.9 million customers offered by a mutual had yet to be demonstrated, he said.

He claimed that the Kelda proposals to separate assets from its operations failed to set out clearly how customers would benefit from the change, properly inform and consult Yorkshire Water's customers or to demonstrate independence between the proposed mutual and Kelda.

John Napier, Kelda group executive chairman, announcing withdrawal of the proposal and intention to seek an acceptable way forward, said: "We put forward our proposals as we believed that a new structure is required if the industry is to be able to fund its long-term capital investment programme at the lowest cost, while delivering its commitment to improved customer service."