Ian Byatt, the head of Ofwat, also said he would press the Government to speed up competition in the water industry and use his new powers to stamp out abuses by water companies of monopoly positions.
The regulator is proposing a one-off cut in water bills of pounds 40 to pounds 50 in April 2000. But he has come under pressure from ministers concerned that prices may then have to rise in subsequent years to meet the pounds 8bn bill for improving drinking water quality and cleaning up discharges.
Mr Byatt conceded there were very big regional variations in the cost of environmental programmes and this would have to be taken into account in his five-year price review.
This could result in companies with extensive coastlines, such as Northumbrian and Southern, escaping the most draconian one-off cut in bills, while suppliers such as Severn Trent and Thames would face higher initial reductions.
The companies submit their business plans to Mr Byatt next month. He will then publish draft price limits in July and final limits in November.
It was announced in the Budget that the Deputy Prime Minister, John Prescott, is to investigate water competition. Mr Byatt said he would call on Mr Prescott to allow the transfer of abstraction licences so companies could draw water from other suppliers' areas.
He also warned that Ofwat would use its new powers under the Competition Act to police common carriage agreements - where the incumbent water company charges a rival supplier to use its system - and connection charges. In the last 10 years Ofwat has intervened in 210 cases where customers have been overcharged for connections by 25 to 30 per cent. Under new legislation Mr Byatt will be able to fine companies 10 per cent of their turnover.