Northumbrian Water today became the first water group to warn that its future profits hinged on this week's crucial decision by the water regulator over price controls for the next five years.

The company said that it had met Ofwat officials to "make representations" over Ofwat's proposed controls.

Ofwat's draft plan in July surprised most players in the water industry by calling on it to cut bills, rather than allowing price rises. Thames Water is seriously considering a legal challenge.

Northumbrian Water reported that pre-tax profits rose by 13 per cent to £87 million in the six months to September, thanks to lower interest charges on its debt, but said that it was being hit by the economic downturn as demand for water and sewerage services fell as some major industrial customers on Teesside shut down.

Shares in Northumbrian fell by 1.43 per cent to 242.67p in early trading.

However, Northumbrian's finance director Chris Green ruled out the need for a rights issue, saying "that is definitely not on the agenda." The price controls it faces may not be as harsh as some. It is being allowed to raise average annual household bills in real terms by £3 over five years, while it has to meet an investment programme of £1.2 billion.

Most analysts do not number Northumbrian among those water companies that will be forced to raise equity by Ofwat's determination, which will cover the five years from April 2010.

Northumbrian was careful not to directly criticise the draft determination today but John Cuthbert, the company's managing director, warned: "Income and costs at Northumbrian Water Limited have been adversely affected in the period by business closures in the North East."

Mr Cuthbert said: "We continue to monitor the uncertain situation very carefully and representations have been made to Ofwat following the announcement of the draft determination."

The company cited Ofwat's final determination, to be published this Thursday, as "the key risk for the business".

Overall, revenues rose by 1 per cent to £351 million in the period. The company took a one-off charge of £1.7 million for the closure of one major customer, Artenius, a chemical firm on Teesside, an offshoot from the former ICI whose Spanish parents placed it in administration. But it was still able to raise the dividend slightly, from 4.29p to 4.39p.

Mr Green said the policy of raising the dividend by 3 per cent a year during the current five year period would have to be reviewed for the next five years from April 2010 once the company has studied Ofwat's final determination.

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