Severn Trent Plc, the U.K.’s second- biggest water utility, said performance in the six months through September is in line with company forecasts as it continues to benefit from higher prices allowed by the industry regulator.

Severn Trent is seeking to keep annual operating costs 3 percent below the regulator’s target through the next two years, the Birmingham, England-based company said today in a statement. Commodity and chemical prices, which affect such costs, remain volatile, it said.

The utility, which supplies water to more than 8 million people, has over the past few months agreed to pay fines to resolve regulatory issues encountered under previous management. U.K. water companies’ sales are rising as industry watchdog Ofwat allows customer-price increases to fund investments.

Revenue in the year through March climbed 4.9 percent to 1.48 billion pounds ($2.75 billion), Severn Trent said in June. Ofwat has allowed the second-biggest British water company after United Utilities Group Plc to raise prices an average 4.5 percent a year through 2010.

Severn Trent today said infrastructure spending for the six months to Sept. 30 is expected to be about 60 million pounds, about 45 percent of total net expenditure for the year. Net debt, excluding adjustments, will probably be about 3.5 billion pounds at the half-year interval, it said.

The company last month said it wouldn’t appeal a record 35.8 million-pound fine handed out by Ofwat for providing false data and poor customer service between 2005 and 2007. The utility also said at the time it would pay 5 million pounds to low-income customers following talks about a March 2006 regulatory report that it submitted incorrect data in 2002 and 2004.

Severn Trent in July was docked 2 million pounds in court after pleading guilty to charges from the U.K.’s Serious Fraud Office for hiding leakage data from the regulator in 2001 and 2002 to avoid costly repairs. No individuals were charged.

Customer bills will need to rise “slightly above inflation” so that the company can fund a planned 3.2 billion- pound investment program in the five years through 2015, it said last month. Utilities have submitted proposals to Ofwat for how price limits and customer-service and infrastructure improvement targets should be determined for the period.

Chief Financial Officer Mike McKeon said in June that the company has hedged for 93 percent of energy costs this fiscal year and expects electricity charges to rise by about 10 million pounds from last year.

The company will announce first-half results on November 25th.

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