News
£123 Million Fine For Thames Water
Beleaguered water supplier Thames Water has been fined by industry regulator Ofwat for rule breaches relating to both wastewater operations and dividend payments, with penalties totalling £122.7 million… £104.5 million for wastewater contraventions and £18.2 million for dividends.
Ofwat has now completed two separate investigations into the company’s operations, with the firm and its investors set to pay the penalties, rather than passing on the costs to customers in the form of bill increases.
Wastewater operations.
Ofwat has been looking into Thames Water’s management and maintenance of its sewage treatment works and networks. In August last year, it consulted on a proposal to hand down a £104.5 million penalty, alongside an enforcement order requiring the firm to take measures to ensure compliance.
During the investigation, it was found that the company had significantly breached its legal obligations, resulting in unacceptable impacts on both the natural environment and its customers.
Ofwat identified that the majority of Thames Water’s wastewater treatment works currently have storm overflows that make regular spills into the environment. In 2021, more than 70 per cent of these sites spilled on 20 or more occasions, with nearly 30 per cent spilling on over 60 occasions.
Thames Water failed to prove that incidents such as these were the result of exceptional circumstances. It also failed to prove that it would have been excessively expensive to address overflow spillages.
In fact, the review demonstrated that operational and asset maintenance issues were the reason for high spill counts at the majority of the firm’s highest spilling storm overflows.
The conclusion was drawn that Thames Water didn’t have appropriate and robust water management processes and controls set up to deliver its wastewater services in compliance with legal obligations.
Evidently, it was unable to properly monitor and assess compliance with legal and regulatory obligations and, even when it became aware of compliance risks across the network, it didn’t take action to address these urgently and effectively.
Dividend payments.
In October 2023, Thames Water decided to make interim dividend payments of £37.5 million to holding company Thames Water Utilities Holdings. It asserted that it had considered all legal and regulatory obligations when reaching this decision, but the Ofwat investigation found that the supplier had failed to comply with its Licence Condition P30 obligations.
Come March 2024 and Thames Water had made additional payments totalling £158.3 million, again asserting that all legal and regulatory obligations had been considered.
However, Ofwat concluded that the firm had failed to fully comply with its licence conditions in both instances.
The main concern that the watchdog had was the level of risk that Thames Water afforded to the non-payment of dividends to the holding company, which was already in financial distress, compared to the lack of consideration given to how dividends could be justified given serious and ongoing performance issues, coupled with weak financial resilience.
This, Ofwat observed, is an approach inconsistent with Condition P30, as well as posing significant risks to the protections supposedly afforded to a regulated company where shareholders are in a position of financial distress, and undermining customer protections.
Thames Water fines.
Consequently, Thames Water has been fined the biggest penalty ever issued by Ofwat – £122.7 million.
Chief executive David Black said: “This is a clear-cut case where Thames Water has let down its customers and failed to protect the environment. Our investigation has uncovered a series of failures by the company to build, maintain and operate adequate infrastructure to meet its obligations.
“The company also failed to come up with an acceptable redress package that would have benefited the environment, so we have imposed a significant financial penalty.
“This decision provides certainty for the company for both its past failures and what we expect from the company to comply with its obligations in future. The company is seeking new buyers to fund its turnaround to provide better services for customers and the environment by improving operational performance and financial resilience.
“This provides a clear opportunity to break with the past, Thames Water will now need to correct the issues our investigation has identified.”
This is the first time that Ofwat has used its powers to take enforcement action against a supplier where dividend payment decisions don’t reflect customer or environment delivery performance.
Hopefully, the move will serve as a stark warning for other utility firms that continue to hand out bonuses and hefty dividends to shareholders despite woeful performance across their businesses.