Severn accepts ruling but warns over dividend

The company, which supplies water to customers in South Yorkshire and the Humber, said it would need to cut the dividend by around 10 per cent in order to meet the spending proposals.

Severn said it will not challenge the water regulator's "tough" ruling that it cuts average household bills by four per cent in real terms by 2015.

The utility giant, which serves more than eight million customers across the heart of the UK, had the option to refer Ofwat's decision to the Competition Commission, but joined South West Water owner Pennon in accepting the settlement.

Severn's chief executive Tony Wray said the final determination was tough, but the company could meet the proposals.

"We believe we can maintain our networks and deliver the service enhancements that our customers asked for, and the average bills for our customers will reduce in real terms over the course of the plan," he said.

Ofwat sets the amount water companies operating in England and Wales can charge their customers every five years, and rules how much the companies are allowed to make from their investments.

It demanded that water companies reduce the average bill by 3 to an average 340 a year.

Mr Wray said Severn Trent would improve efficiency, giving its customers the lowest average bills in England and Wales.

The company also said it would seek to raise the dividend as performance improves.

Ofwat's determination for the 2010-15 period allows for capital investment of 2.5bn, compared with 2.6bn in Severn's own business plan.