Severn Trent may appeal for rise in water bills

Severn Trent, Britain's second-biggest water company, said yesterday it may appeal to the industry regulator for an increase in customer charges after a £36m rise in costs since its five-year price control was set in 2000.

Robert Walker, Severn Trent's chief executive, said, however, that it remained confident of outperforming the targets set by Ofwat and expected to achieve gross efficiency savings of £75m by the end of the price control period.

Mr Walker said that Severn Trent would decide by September whether to apply for a so-called interim determination from Ofwat allowing it to raise bills. Much of the £36m cost increase is made up of higher insurance and rate bills and the climate change levy, which cannot be recouped from customers. But an estimated £10m of costs stemming from new environmental requirements not taken into account by the regulator may be eligible.

Severn Trent also indicated that it was ready to make further job cuts in its analytical services business in the US, which has been hit by the economic downturn and a switch in federal spending away from environmental protection in the wake of 11 September. So far 200 jobs have been axed and two laboratories closed.

Pre-tax profits for the year to 31 March rose by 5 per cent to £233m while the dividend was raised by 2 per cent to 45.9p.