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Fines are not fine for water consumers

CONSUMER COUNCIL FOR WATER News Release (CCWater12/08) issued by The Government News Network on 17 April 2008

Following Ofwat's announcement today (Thursday 17 April 2008) that Thames Water will pay a reduced fine of £9.7 million, down from £12.5 million, for misreporting information to the regulator and failing to provide some customers with compensation payments, the Consumer Council for Water is surprised that Ofwat has decided to reduce the fine, and disappointed that the money will go to the Treasury, rather than to benefit consumers.

Any water company that breaks the rules must be penalised and dealt with in the strongest way possible, but there is another way to do this and benefit consumers at the same time. The regulator can instead negotiate an extra investment package at a cost to shareholders which is much larger than a traditional fine.

Alternatives to fines have been used before. For example, in 2006, Thames Water reported missing its leakage target, but instead of a fine going to Treasury, it was agreed that a more suitable punishment would be for the company to invest an extra £150 million of company shareholders' money to replace ageing pipes. This cost shareholders twice as much as the maximum fine Ofwat could have imposed on the company (ten per cent of turnover), and the extra investment is directly benefiting consumers, not the Treasury.

This latest fine announced today against Thames Water added to other confirmed fines against Southern Water (£20.3 million), United Utilities (£8.5 million) and the intended fine against Severn Trent (£35.8 million), means that over £74 million could end up with Treasury, instead of being used to benefit consumers.

Dame Yve Buckland, National Chair of the Consumer Council for Water, said: "Penalties can and should directly benefit consumers, and make it very clear to companies that breaking the rules will not be tolerated. Where penalties occur, consumers should benefit first. They should not be just another source of income for the Treasury.

"As a minimum, Thames Water needed to get their reporting systems in order and compensate the customers who had been affected.

"We have serious concerns over the number of water companies being investigated or fined by Ofwat, especially when consumers do not see some benefit at the end of the process.

"The incidents of companies misreporting, deliberate or not, have had a serious negative effect on consumers' views of the water industry and companies will need to work hard to restore their credibility."

Notes for editors

1. To date Thames Water and two other companies have been fined by Ofwat. Southern Water was fined £20.3 million for misreporting and failing to pay some customers compensation, and United Utilities was fined £8.5 million for breaching rules governing trading arrangements with associate companies. Ofwat has also announced an intention to fine Severn Trent £35.8 million for misreporting and failing to pay some customers compensation but this has not yet been confirmed.

2. The Consumer Council for Water represents consumers in England and Wales.

3. The Consumer Council for Water is the statutory water consumer body, and operates as a non-departmental public body reporting to the Department of Environment, Food and Rural Affairs and the Welsh Assembly Government. It has a committee for Wales, and at local level is supported by four regional committees in England.

4. Our national website is http://www.ccwater.org.uk.

For public enquiries to the Consumer Council for Water, please contact via email on enquiries@ccwater.org.uk, our national number, 0845 039 2837, or via minicom on 0121 345 1044.

The Consumer Council for Water
Victoria Square House, Victoria Square, Birmingham B2 4AJ