UNITED Utilities plans to raise £1bn to help overcome financial difficulties arising from its regulated utility businesses.

The Warrington group's rights issue comes as United faces up to a capital investment bill expected to total at least £3.5bn between 2005 and 2010.

The electricity, gas, telecoms and water group said proceeds from the fund-raising would be received in two stages - September and June 2005.

United added that it had made a one-off application to water regulator Ofwat for the right to increase customer bills for the 2004/05 period.

Among the investment costs faced by United include requirements driven by European river and bathing water directives.

Chief executive John Roberts said: "We are therefore proposing an innovative, two-stage rights issue that will help fund this growth in our regulated businesses.

"We're confident that this growth will provide us with an opportunity to outperform our regulatory contracts by securing capital efficiencies, for the benefit of both customers and of shareholders."

A spokesman added the rights issue provided the company with greater financial flexibility and bolstered its balance sheet to lower the cost of borrowing.

The water industry is heavily regulated and United said it had achieved around £480m of cost savings covering the 2000 to 2005 review period.

News of the discounted rights issue - priced at 40pc below Friday's closing price - sent United shares down by as much as 6pc on the London market. Fellow utilities Severn Water and Yorkshire Water owner Kelda also fell.

United's proposals will see it offer five new shares for every nine held.

The company, which has 3m water and 2m electricity customers, added in today's statement that recent trading across the group had been in line with expectations.

United Utilities pointed out that while previous capital investment programmes had been financed through operating and capital efficiencies, there was likely to be less scope in the future for similar savings.

It added: "The consequence is that greater reliance will inevitably be placed on other sources of funding, both from customers and from the capital markets." United said that its current regulatory review period showed it had delivered the largest water and wastewater infrastructure programme in England and Wales.

The company's electricity arm also has an investment programme in respect of its distribution business of around £500m between 2000 and 2005.

United, which still needs the approval of shareholders on August 26 for the rights issue, also pledged to maintain its dividend in real terms until 2005 and deliver an "acceptable return" beyond that.

Andrew Fisher, utilities analyst at fund manager Gerrard, said the alternatives to a rights issue included the raising of debt, the sale of businesses or the cutting of the company's dividend. He added: "This is an understandable move to go to shareholders to ask them for more money to fund capital investment."

United's non-regulated operations include a business outsourcing arm Vertex and a telecoms division Your Communications.