Water bills 'to rise'

Severn Trent has to meet extra costs

Two water companies have been given permission to raise their charges over the next two years by the industry regulator.

Ofwat said it had granted requests from Severn Trent Water and Yorkshire Water to put up prices by more than the limits agreed under the regulator's five-year price caps.

Ofwat director general Philip Fletcher said he had "considered carefully" before agreeing to the changes to meet "certain specific additional costs" that were not taken into account when prices were set for the five years to April 2005.

As a result, Ofwat said Severn Trent customers' bills would rise by £3 on average over the next two years to April 2005.

Longer term price falls

Yorkshire Water's customers can expect to pay an extra £6 on average next year and £8 in the year to April 2005.

But Ofwat said the average bill from both companies would still fall over the duration of the five-year price cap period.

Floods have increased in recent years

Yorkshire Water's average bill would now be about £20 lower at the end of the period, while Severn Trent's average bill would fall by £35, said Ofwat.

On the London stock market, Severn Trent's shares rose 2.8% to 678 pence by mid-morning as investors celebrated the ruling.

Ofwat had previously refused Severn Trent's request for price rises because the additional costs did not exceed 10% of its anticipated revenue.

Ofwat's about turn

But the regulator relented after a court judgment settling the amount that Severn Trent must pay to British Waterways for discharging surface water into canals.

"The new price limits will also allow Severn Trent to invest more than £20m to reduce further the number of properties experiencing sewer flooding.

"The decision still rejects a large part of the increase sought by the company," Ofwat said.

The ruling allows Severn Trent to raise its charges by 2.1% next year instead of zero and by 2.2% the following year, which is 1% above the original limit.

Yorkshire Water will now be able to raise its charges by 3.4% in the first year, instead of zero, and by 3.5% the next year.