By MICHAEL HARRISON
Nov 29, 2000 (The Independent - London)--Severn Trent, Britain's second largest water company, may ask Ofwat to re-open its price controls after yesterday warning that more investment was needed in its sewer system to cope with flooding linked to climate change. The move came as Severn Trent announced a 33 per cent fall in pre-tax profits, mainly due to Ofwat's price cuts.
The company also ruled out separating the ownership and operation of its regulated water and sewage business. David Arculus, Severn Trent's chairman, said that November's storms, which flooded out 50 of the company's sewage treatment works and 70 of its pumping stations, had reinforced its concerns about climate change.
He added that the lack of funding available for upgrading the sewage infrastructure was a "concern". In its five-year price review, which took effect in April, Ofwat allowed capital investment of pounds 2bn against the pounds 2.4bn Severn Trent requested.
Brian Duckworth, managing director, said that Severn Trent had a "19th century sewer system trying to cope with 21st century rainfall patterns". He also pointed out that several water companies had already challenged Ofwat's price determinations, and added: "There is a possibility that other companies may have to go back to Ofwat over the next three years."
Robert Walker, chief executive, said that Severn Trent had decided to keep ownership and operation of its water assets together because that was the structure that worked best. He questioned whether restructuring plans being worked on by Anglian, Kelda, Pennon, Welsh Water and others would get regulatory approval.
Pre-tax profits fell from pounds 169m to pounds 113m in the six months to the end of September following the 12 per cent price cut and there will be a pounds 20m charge to pay for 1,100 redundancies.
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