Ofwat proposes £35.8 million fine on Severn Trent Water

Ofwat today published its proposals to fine Severn Trent Water 3% of its turnover – a total of £35.8 million – for deliberately providing false information to the regulator and providing a poor service to its customers.

Ofwat’s proposed fine on Severn Trent Water breaks down as follows:

* 2.9% of 2006-07 turnover (£34.7 million) for deliberately misreporting some key customer service information; and

* 0.1% of 2005-06 turnover (£1.1 million) for providing sub-standard services to customers in 2005-06 by failing to meet Guaranteed Standards of Service.

Ofwat today published its proposals to fine Severn Trent Water 3% of its turnover – a total of £35.8 million – for deliberately providing false information to the regulator and providing a poor service to its customers.

Ofwat’s proposed fine on Severn Trent Water breaks down as follows:

* 2.9% of 2006-07 turnover (£34.7 million) for deliberately misreporting some key customer service information; and

* 0.1% of 2005-06 turnover (£1.1 million) for providing sub-standard services to customers in 2005-06 by failing to meet Guaranteed Standards of Service.

Severn Trent Water’s Customer Relations Department deliberately misreported some of its customer service data to hide its true performance in 2005 and in earlier years. This damaged Ofwat’s ability to regulate the water sector effectively and protect customers.

Severn Trent Water’s shareholders will bear the entire cost of the proposed penalty. It cannot be passed on to its customers.

Ofwat Chief Executive Regina Finn said:

“Severn Trent Water’s behaviour was unacceptable. The size of the proposed fine reflects how seriously Ofwat takes the deliberate misreporting of information.

“This sends a clear message to the company and to the rest of the water sector – Ofwat will protect consumers and companies must comply with their legal obligations or pay the price. Any further attempts to deliberately mislead Ofwat could lead to even bigger fines in the future.”

In a monopoly industry where the majority of customers have no choice of supplier, the only protection customers have is from the regulator. Reliable, accurate and complete information is fundamentally important if Ofwat is to be able to protect consumers. By deliberately misrepresenting its performance, Severn Trent Water prevented Ofwat from identifying failures in the company’s customer service and taking action to improve that service.

This deception combined with poor internal processes and controls within the company meant that its customers received a service that was far below what the company had reported it was delivering, and in many cases was below the statutory minimum standards.

The company’s actions also resulted in customers paying higher bills than they should have done. Some customers also missed out on payments they were entitled to because performance fell below prescribed standards.

As part of its actions to put right these failings, Severn Trent Water is returning money to customers. It has already made a start by returning some of that money through a reduction in this year’s (2008-09) bills. The remainder will be returned to customers in next year’s bills.

The company is also implementing action plans to address the weaknesses identified in its internal processes and controls. Ofwat is working closely with the company’s auditors and reporters to monitor Severn Trent Water’s performance.

Ofwat notes that Severn Trent Water took action when it discovered the misreporting. It reported the situation to Ofwat, initiated an investigation and co-operated with Ofwat’s investigation. These factors have been taken into account when setting the level of the proposed penalty.

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