by business editor Trevor Sturgess

The decision to hold water prices at roughly present levels for the next five years may affect services, Southern Water has warned.

Ofwat, the industry regulator, disappointed the industry by restricting increases in customer bills and the sums they can pay on improvements, to less than water companies wanted.

Southern Water said it would be examining the report to see how it can continue to deliver the best possible service across Kent, Sussex, Hampshire and the Isle of Wight.

Chief executive Les Dawson said: "This is an extremely complex report and it is vital we understand fully what it means for customers and our business.

"We need to take on board what Ofwat is saying and see how we can continue our commitment to delivering our four million customers first class services over the next five years.

"In particular, we must look closely at how we can deliver investment in improved services, especially in areas customers have told us they would like to see.

"These include drinking water quality, a reduction in flooding and pollution incidents, full household metering and carbon reduction measures, including power generation from waste."

Southern Water has invested some £2billion in capital investment improvements since 2005. It says this has helped the company achieve low leakage levels, and ensures a 99.2 per cent pass rate for wastewater treatment works meeting European quality standards.

It has also cut flooding from blocked or collapsed sewers by more than a quarter, and claims it provides tap qater of the quality among the best in Europe.