Ofwat said the water industry must cut bills from 2000 to 2005 and undertake an £8.5bn spending programme to improve services and the environment.

Chief executive Ian Robinson said ScottishPower would present a "strong" case to industry regulator Ofwat to reach a compromise.

Mr Robinson called for "consistency" over pricing.

He said Southern Water was one of the few UK groups able to make a one-off steep cut before being allowed to raise bills back above their original starting point.

The company faces a cut of up to 17.5%, but will be allowed the increases because it has one of the largest capital expenditure programmes in the industry at £330m a year.

"Being able to make a sudden cut to bills and then increase that back above from where we started doesn't seem to be what the customers want," Mr Robinson said.

Mr Robinson's views echoed similar comments on Tuesday by Anglian Water and Thames Water.

A spokesman for Ofwat said the industry would be consulted: "We will be holding meetings with the companies and if they are totally unhappy they are in their rights to appeal to the Monopolies and Mergers Commission."

Profits up

Scottish Power also announced first-half results.

Pre-tax profits rose to £247m from a £245m (restated) for the six months to September 30.

The 1997 figure was adjusted from £240m after the company took on board recommendations on accounting standards.

Mr Robinson said the regulator's demand would not affect dividend policy over the next two years and he expected growth to remain at 7-8% a year.

He said it would be prudent to review the strategy for payments after the year 2000.

Sales rose to £1.44bn from £1.37bn and the interim dividend increased to 7.5p from 6.80p.

Southern Water, one of the three main businesses of the group, saw sales fall to £221m from £242m following the disposal of non-core businesses.

Scottish Power said it was still interested in buying a US company but had not found the right deal.

Mr Robinson said they were looking to take over a medium-sized US utility in a friendly transaction.

"We are looking for the best opportunity. We are not in a hurry," he said.

The company said it expected to continue to grow in the increasingly competitive gas and electricity markets.

It said it was signing up 12,000 gas customers a week and expected to reached 1.3m in total within two years.

Gas sales increased by £29m to £42m following the rise in users.

Manweb, which has won 60,000 new electricity customers since the market began to open up to competition in September, increased its operating profit "marginally" to £68m.

Robinson said the company had no plans to partly float ScottishTelecom where operating profit was up by more than £1m against the previous year's loss of £1m.