The company, which serves more than 8m customers in the UK, has been told by the regulator to cut average household bills by four per cent in real terms by 2015.
To meet this requirement, the company will impose a one-off cut on its dividend payment once the new rules come into effect in the next financial year.
Chief executive Tony Wray said the final ruling was a tough outcome, but the company could meet the required outputs.
“We believe we can maintain our networks and deliver the service enhancements that our customers asked for, and the average bills for our customers will reduce in real terms over the course of the plan,” he said.
The company will seek to raise the dividend as performance improves.
“Our financing plan will give shareholders a sustainable and growing return. Investors should see this as a floor from which we will target growth in line with our improving operational performance,” he said.
All water companies have until 26 January to refer Ofwat’s decision to the Competition Commission, but Severn Trent and six other companies have already declared they will not challenge the ruling.
Ofwat sets the amount water companies in England and Wales can charge their customers and how much they are allowed to make from their investments. Its determination for 2010-15 requires firms to reduce the national average water bill by £3, to £343. It also set investment for the next five years at £22bn, down from £85bn in the previous ruling.