Ofwat confirms Thames leakage failure penalties

Ofwat has today (8 August) rubber stamped the £120 million payments and penalties package Thames Water will pay for its poor leakage performance.

The water company agreed on 7 June to pay £65 million back to customers on top of £55 million in automatic penalties incurred for not meeting its commitment to cut leaks.

Ofwat conducted a consultation following the announcement last month and received responses from Affinity for Business, the Consumer Council for Water (CCWater) and an individual consultant.

The move follows an investigation by Ofwat, which found Thames Water’s board did not have “sufficient oversight and control” of the company’s leakage performance.

Rachel Fletcher, chief executive at Ofwat, said: “The action we have taken against Thames should help to deliver important improvements for customers and the environment.

“The formal undertakings from Thames Water to improve its board’s oversight and determination to get on top of leakage are an important commitment because the failures we found were failures of leadership. Thames Water has now accepted that it needs to address this head-on and we will monitor closely how it does so.

“This case provides important lessons for all water companies about board leadership and assurance of their statutory obligations – it is another reminder that, if companies fall short, we will step in.”

Ofwat’s investigation found that Thames Water’s board did not pay enough attention to reducing leakage and underestimated its legal responsibility for oversight of its leakage operations and the responsibilities of its board.

The regulator said Thames had “given assurances” about being able to meet its legal obligations, but it transpired these assurances were “not based on solid information”.

Thames Water has since committed to getting its leakage performance back in line with what it has promised it will deliver for its customers in 2019-20. It plans to reduce leakage by a further 15 per cent by 2025.

The company will also publish its performance each month in tackling leaks and do more to “engage meaningfully” with customers on leakage issues, including board members meeting customer representatives to discuss the company’s leakage performance.

In addition, Thames Water has pledged to provide Ofwat with “more detailed and externally audited evidence” when it provides assurances that it has the right resources, systems and controls in place to meet its statutory obligations.

In its response to the consultation, CCWater, said: “We fully support the proposal to compensate customers in this way as it will have the most direct and immediate benefit for customers.

“CCWater has supported the adoption of a ‘restorative justice’ approach to enforcement by Ofwat. Instead of a fine that is paid to the Exchequer, the penalties applied to a company for a breach of duty or failure in required performance delivers a direct benefit to the company’s customers.”

Helen Gillett, managing director of Affinity for Business, said: “The notice is not explicit as to whether business customers are covered alongside residential customers by the measures Thames Water has proposed to ensure that customers do not bear the cost of its failings.

“We trust that this is the case but, if not, we strongly consider that any reductions in wholesale charges should apply to both sets of customers.”

Environment secretary, Michael Gove has challenged water companies to “raise the bar” to tackle leakage.