Severn may challenge Ofwat rules

SEVERN Trent has given the strongest indication yet that it may attempt to turn over Ofwat's ruling, due on Thursday, on household water bills in the Midlands for the next five years.

Its customers are already in for rises of up to 24%, according to the water regulator's indicative ruling on price caps.

But Severn is warning that may not be enough to cope with the big changes needed in capital and operating expenditure to upgrade water mains, prevent foul flooding by overflowing sewers and to put in place environmental changes demanded by Brussels.

In a statement alongside its interims, Severn Trent chairman David Arculus - in his last set of results before he moves to mmO2 - said: 'Ofwat's draft determination made certain material changes to our business plan, some of which represent a change in circumstances and others a transfer of costs and risks to the company.

'We will consider Ofwat's final determination carefully before announcing our decision to the market.'

Water companies have until February to appeal Ofwat's ruling and can take their case to the Competition Commission. Severn's decision will be made by Colin Matthews, the former Hays boss who is already at the company but does not formally takeover from chief executive Robert Walker until February.

Severn said underlying profits before tax were down 6.5% to £141m in the six months to the end of September. The interim dividend is going up 2.5% to 18.21p.

Debt remains steady at £2.7bn and the pensions deficit is £236bn.