Severn Trent in 'robust' talks with Ofwat over water bill rises

Severn Trent, the Midlands-based water company, yesterday gave the clearest indication yet that it may take the industry regulator to an appeal if it fails to get approval for a sufficiently large increase in bills.

Severn Trent, the Midlands-based water company, yesterday gave the clearest indication yet that it may take the industry regulator to an appeal if it fails to get approval for a sufficiently large increase in bills.

Ofwat will publish final price controls on Thursday setting out how much suppliers can raise domestic bills by over the next five years. In the summer, the regulator produced draft proposals allowing Severn Trent to raise prices by 16 per cent - half the increase it had applied for - to finance a £2.5bn investment programme.

The company said that since then "robust representation" had been made to Ofwat, arguing the case for the regulator to amend the draft proposals.

Robert Walker, Severn Trent's outgoing chief executive, said the City had the mistaken impression that the company had emerged relatively well from Ofwat's initial proposals, but this was not case and there were a number of areas where it was seeking leeway to impose higher prices. Mr Walker said Severn Trent would not decide whether to take Ofwat to the Competition Commission until next January and then the decision would be one for his successor, Colin Matthews, who formally takes over as chief executive in early February.

Mr Walker was speaking as Severn Trent reported a 10 per cent fall in first-half profits to £126m, mainly because of higher pension charges. The company is putting an extra £32m into its fund this year to help reduce a £236m pension deficit.

Profits before interest, tax and amortisation in the regulated water business rose 1.3 per cent to £181m. Profits at its subsidiary Biffa, the UK's largest waste collection and second largest landfill operator, rose 12 per cent to £44m on the same basis, but profits from the group's services division, which include its US laboratories, fell 9 per cent to £18.7m, due to the weakness of the dollar and a fall in US government spending.

Mr Walker refused to be drawn on the timing or outcome of its internal investigation into alleged accounting irregularities, which a member of its finance department had brought to Ofwat's attention.

He maintained that the company had not affected the group's accounts, nor had customers been overcharged.

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