Billing scandal costs Severn Trent £10.6m

Severn Trent, the FTSE100 utility group, revealed today that it will take a
£10.6m hit to its profits after water regulator Ofwat reprimanded the group for
weaknesses in its internal controls.

Last month Ofwat concluded that Severn Trent ‘had poor internal controls’
which caused customers to be overcharged by £2m in 2004. These weaknesses also
resulted in price limits for the five years to 2010 being set £8m too high.

Severn Trent initially employed PwC to look into the matter, but Ofwat
conducted a further probe before penalising the group. Severn Trent will this
year, on
average, credit £4 per customer in addition to the £2 to £3 already rebated. In
the following three years the rebate will be £2 to £3 per customer.

In a trading statement today, however, the group said that despite the
provision profit before interest and tax was still expected to come in 30% to
35%. This growth was mainly due to a 15.2% increase in prices applied from April

A spokesman for the group said that it was continually reviewing its internal
processes and controls after the Ofwat matter, but did not expect to take a
material charge for additional work and consulting to strengthen these areas.

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