South West Water set to provide pounds 2m for MMC costs

South West Water is expected to make a provision of as much as pounds 2m this year to cover the cost of complying with the Monopolies and Mergers Commission inquiry and other related expenses.

The inquiry, due to be completed in six months, follows a decision by the company to reject new price limits set by Ofwat, the industry regulator.

The company declined to comment on its position, but it is thought that at least pounds 1m of the provisions relates to its own MMC costs. It is unclear to what extent the company may have to cover Ofwat's costs. Under Ofwat's proposals, South West Water's prices will be capped at inflation plus 1.5 percentage points from April and at 'RPI plus 1' for the next four years. Prices would then be capped at inflation for five years.

South West, the only one of the 10 main water and sewage companies to reject Ofwat's plan, has had a price cap of 'RPI plus 11', which is much more lenient than the industry average. The company argues that the new controls would force it to cut its capital investment programme to an unacceptable level. It estimates the cap would halve its programme to about pounds 100m annually in the first five years, and by about pounds 80m a year between 2000 and 2005.

A company spokesman said: 'We just do not feel it is enough to enable us to meet all our obligations.' He said that besides the massive coastal sewage treatment schemes to which South West is committed, it could compromise its work on tap water quality.

Hydro Electric, one of two Scottish electricity companies, will announce soon whether it will go to the MMC over pricing controls. Offer, the electricity regulator, recently announced tougher than expected price controls for Hydro Electric, starting in April.