A move allowing businesses to shop around for water suppliers threatens to slap an extra £10 on household bills in Exeter and the rest of Devon it has been warned.
South West Water has told MPs that the planned introduction of competition into the industry for commercial customers will 'inevitably' impact on other consumers.
In evidence to a parliamentary inquiry, the firm points out some costs and services which benefit households more, such as bad debt and installation of water meters, are currently recovered across the whole customer base.
And 'unwinding' these cross subsidies would increase domestic bills by as much as £10.
The utility company has said it is vital the introduction of the changes does not 'disproportionately' affect domestic customers.
Such a hike in charges would represent a hammer blow to efforts to help hard-pressed families struggling to pay their bills, which are the highest in the country with an average charge of £543, compared to £376 in England and Wales.
And the increase would also wipe out a fifth of the £50 rebate being offered to every household in recognition of the underlying 'unfairness' of charges in the region.
South West Water also highlights the dangers of 'cherry picking' of businesses in urban areas which are cheaper to supply, and the knock-on effects on rural consumers.
Proposals to break up the water monopoly and allow businesses and public sector bodies such as councils and schools to shop around suppliers, were contained in the Government's draft Water Bill, published earlier this year aimed at reforming the industry.
Ministers said measures were in place to stop householders cross-subsidising attempts to attract business customers.
In a written submission to the Commons Environment Select committee which is holding an inquiry into the draft legislation, South West Water sated: "It is proposed that wider choice for business customers in their water and sewerage services will bring benefits and create new and innovative ways of serving customers.
"However, it is vital the implementation of change retains broad customer and stakeholder support by not disproportionately affecting domestic customers in particular, either in terms of sudden and difficult-to-explain increases in bills and/or reduced service levels.
"Retail competition for commercial customers will inevitably impact other customers. Currently, some costs and services which benefit households more than non-households are recovered across the whole customer base. Unwinding these cross subsidies would increase household bills.
"For example the higher level of household bad debt in the industry that results from the ban on disconnections is underwritten by all customers as is the installation – approximately £200 per property – of meters for domestic customers.
"If these costs were to be supported by domestic customers alone, there would be significant increases in charges in addition to the annual prices limit publicly determined by Ofwat. In the South West Water region this could add £10 to household bills."
The company is calling on the Government to take steps "…to avoid these being unwound with a consequential impact on household bills.
It added: "It is also essential the regulator determines pricing rules for upstream competition which deter or control the knock-on effects on rural customers of the potential 'cherry picking' of commercial customers in urban areas which are cheaper to supply."
A spokesman for the Department for Environment said: "Measures are already in place to prevent cross-subsidies from household customers to businesses and these will be monitored and strengthened if necessary as competition is extended."