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Ofwat statement on Thames Water leakage commitments

Thames Water’s Annual Report and Accounts 2016-17, published yesterday, show that the company has failed to meet its commitments to reduce leakage in 2016-2017.

As a consequence of missing its commitment on leakage, Thames will be penalised £8.55m. This is the maximum automatic penalty under the performance commitment regime for missing this specific target. The penalty is borne by the company alone and cannot be passed on to customers.

In addition, Ofwat has opened an investigation to consider whether enforcement action is needed over and above this automatic penalty.

Responding to the announcement by Thames Water, Ofwat Chief Executive Cathryn Ross said:

“The failure by Thames Water to meet the leakage commitments it has made to its customers is unacceptable. Our performance commitment regime imposes significant penalties for failure to deliver the levels of performance that customers have paid for and consequently, Thames Water will now face the maximum penalty. We take very seriously our responsibility to ensure that every water company is delivering for its customers and where they fall short, we do not hesitate to step in to protect customers’ interests.”

Notes for Editors:

  1. When will the penalty apply? The penalties incurred by Thames Water will be recovered through a financial adjustment as part of Ofwat’s price review process. This adjustment is made at the end of the current price control period, in 2020. Further information on price review 2019 can be found here
  2. What process is followed before enforcement action is taken? Firstly, we gather information in order to determine: whether a contravention has occurred, is occurring or is likely to occur, and also the nature of the alleged contravention. We expect water companies to provide us with all of the information that we require.
  3. How are leakage performance commitments set? Ofwat introduced the outcomes framework at the 2014 price review. Water companies proposed performance commitments on their services after engagement with their customers, which we reviewed at the price review. Companies also proposed, and we reviewed, financial penalties for not achieving their commitments and, in some cases, rewards for outperforming their commitment – these are called outcome delivery incentives (ODIs). The large majority of ODI penalties and rewards, including all of Thames Water’s ODIs, are settled at the 2019 price review and affect customer bills from April 2020 onwards.
  4. What enforcement powers are available to Ofwat? Separate from the outcomes framework, sections 18-22E of the Water Industry Act 1991 (WIA91) provide that Ofwat may take enforcement action (which includes imposing a financial penalty) against the companies it regulates where these companies either fail to comply with their statutory duties and licence obligations, or are likely to do so. Penalties imposed under section 22A of the WIA91 for licence/statutory breach is paid into the Consolidated Fund operated by the Treasury.
  5. Further details about Ofwat’s approach to enforcement are available here: http://www.ofwat.gov.uk/wp-content/uploads/2015/11/Approach-to-enforcement.pdf
  6. Our ‘Statement of policy regarding financial penalties’ sets out how financial penalties under our enforcement powers may be imposed. In imposing a penalty, we take account of any mitigating factors – including the proactive reporting of the contravention or failure. The full statement can be accessed here
  7. Transparency: Where we take action we will make our decisions public to ensure that our aims and expectations are transparent, and that we are accountable for our decisions.

For further information: Fintan Hastings Senior Associate – Media Relations Ofwat   Tel: 0121 644 7642 Mob: 074 5801 6085 Email: fintan.hastings@ofwat.gsi.gov.uk

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