‘Poor management’ costs Welsh Water millions after misreporting leakage

Poor management and governance arrangements have cost Welsh Water millions of pounds after the company misreported leakage and water consumption figures, Ofwat has concluded.

The regulator’s investigation into misreporting resulted in the company being issued a nominal fine of £1 and underperformance penalties of £7.8 million for 2020-22 as well as £15 million billpayer rebate.

Welsh Water was found to have breached its licence conditions relating to reporting of leakage and per capita consumption information in its 2020-22 annual performance reports.

The company alerted Ofwat to the misreporting in 2022 when preparing its annual performance report and proposed an action plan to remedy the failures. It committed to a suite of improvements to reporting methodologies and training.

To catch up on the leakage deficit, the company will spend an extra £54 million on driving down leaks by 61 megalitres daily by 2025. It will spend an additional £5 million on PCC reduction by expanding its home efficiency audit programme and community engagement.

Customers received a £10 rebate on household bills, totalling £15 million returned to customers.

When the company restated its figures, its leakage rate was significantly higher in each year of AMP7 to date. Its reported PCC reduction were between 7 – 15% each year of the company’s original stated amount.

The underperformance penalties were calculated against the restated figures, with the leakage fine capped at the maximum for the period.

Ofwat’s report said that across AMP6 and AMP7 Welsh Water’s leakage reporting team went through changes including several key, experienced staff members leaving. The complex leakage models and occupancy adjustments were left to more junior staff who “did not appreciate the scale or significance” of the adjustment and did not receive adequate training and support.

Welsh Water’s own investigation acknowledged the “overly complex model” for reporting leakage and pockets of “blame culture” within the company.

Although there was no evidence of the executive team or executive directors deliberately misreporting performance, the company’s investigation found there was relevant information available that should have raised questions about the reported values.

The company’s report to Ofwat said there was “a significant failure both of governance and management oversight”, however there was “no evidence that management directed, encouraged, or motivated individuals in the team to misreport data”.

Welsh said “a highly motivated, but junior team which suffered from a lack of good governance and appropriately experienced management oversight” had been involved in the misreporting.

It failed to ensure appropriate checks and balances of the reported data, and relied on external advice instead of in-house knowledge.

Once it had identified the problem, Welsh Water took steps to address the issues with the way it calculated components of the water balance calculation, which had contributed to misreporting.

It reviewed its company culture and training to emphasise accuracy and ensure staff are able to raise concerns or issues.

Ofwat introduced standardised leakage reporting in 2020 for the first time.