WATER SERVICES
REGULATION AUTHORITY News Release (PN 42/07) issued by The
Government News Network on 14 November 2007
Ofwat today
published its proposals to fine Southern Water a total of £20.3 million.
The economic regulator plans to fine the company for deliberately
misreporting information prior to October 2005 and because poor
processes and systems meant customers received poor service.
Customers also missed out on the payments they were entitled to
because of these service failures.
Ofwat Chief Executive Regina Finn said: "Southern Water
deliberately misreported its customer service performance to Ofwat
and systematically manipulated information to conceal the
company's true performance over an extended period of time.
"The company benefited directly from this misreporting at
the last two price reviews, meaning Southern was able to increase
its prices by more than it should have done. Customers received
higher than necessary bills because of the company's deception.
"Southern Water's shareholders will bear the entire
cost of this fine. It will not be passed on to its customers. The
magnitude of this fine reflects the magnitude of the offence -
deliberately misleading the regulator, failure of the Southern
Water Board of Directors to pick up the deception, the resulting
poor service to customers and damage to the regulatory regime, in general."
Ofwat notes that the company took prompt action once it
discovered the misreporting. It reported the situation to Ofwat
and the Serious Fraud Office, initiated its own investigation and
co-operated fully with Ofwat's investigation.
The company's new management is overseeing action plans to
address the issues found and has ensured customers received
payments they were entitled to. Southern is also returning money
to customers who paid higher bills than they should have done.
These factors have been taken into account when considering the
amount of the financial penalty.
Notes to Editors:
1. The Water Services Regulation Authority (Ofwat) is the
economic regulator of water and sewerage companies in England and
Wales. It exercises its powers in a way that it judges will
protect the interests of consumers, promote value and safeguard
future water and sewerage services by allowing efficient companies
to carry out their functions properly, and to finance them.
2. Copies of the 'Notice of Ofwat's proposal to impose
a penalty on Southern Water Services Limited' and '
Notice of Ofwat's proposed variation of its proposal to
impose a penalty on Southern Water Services Limited ', are
available on the Ofwat website, http://www.ofwat.gov.uk or from
the Ofwat Library by phoning 0121-625 1373.
3. Representations about or objections to the proposals to impose
penalties should be made by 5pm on Friday, 21 December 2007 to
Ingrid Olsen, Head of Enforcement Policy, Ofwat, 7 Hill Street,
Birmingham B5 4UA, or by e-mail to Ingrid.olsen@ofwat.gsi.gov.uk
4. Customer service performance data allows Ofwat to identify
best practice, incentivise companies to improve performance and
take any necessary action where companies fall below acceptable standards.
5. Companies have a duty under their licences to ensure that the
information they provide to Ofwat is reliable, accurate and
complete. This allows Ofwat to compare information across the
industry and fulfil its regulatory duties. This is essential
where customers have no choice of supplier.
6. Ofwat plans to fine Southern Water a total of £20.3 million.
This breaks down as follows:
* £19.8 million (3.5% of 2006-07 turnover) for deliberately misreporting.
* £0.47 million (0.1% of 2004-2005 turnover) for providing
sub-standard services to customers by failing to meet Guaranteed
Standards of Service (GSS).
7. A financial penalty may not exceed 10% of the company's
turnover as set out in Water Industry (Determination of Turnover
for Penalties) Order 2005 (SI 2005/477). Southern Water's
regulated turnover for 2006-07 was £566.8m. The company's
regulated turnover for 2004-05 was £467.6 million.
8. Penalties are paid into the Consolidated Fund and are not
returned to customers. The requirements of the Water Act 2003 mean
Ofwat may only impose a penalty covering a twelve-month period
prior to taking certain specified steps. Additionally, it cannot
impose a penalty in respect of any contravention or failure before
its powers came into effect on 1 April 2005. The penalty proposed
cannot therefore take account of the full scale and duration of
the failures that have been seen in this investigation.
9. Statutory restrictions mean Ofwat can only impose penalties
for two specific one-year periods, but problems have been found to
go back to before 2000. Southern has already reduced its prices to
return the money it should not have received at the 2004 price
review. Bills will be reduced in 2008-09 to return the money it
should not have received at the 1999 price review.
10. Ofwat announced earlier this year that it is proposing to
impose a financial penalty on Southern Water for its failure to
meet customer service standards (see Press Notice PN13/06, 31
March 2006)
11. On 28 September 2007, Ofwat announced its proposals to fine
Thames Water a total of £12.5 million for failing to provide
robust information and poor customer service (see PN33/07)
12. Ofwat previously announced that it is proposing to impose a
financial penalty on Severn Trent Water (see PN 16/06, 8 June
2006) for their failures to meet customer service standards. This
press notice is available on the Ofwat website. Ofwat will consult
on the final scale of a financial penalty.
13. Customers of all water and sewerage companies are entitled to
minimum guaranteed standards of service, which are set out by the
Government. The Guaranteed Standards Scheme (GSS) applies to all
water and sewerage customers, including potential customers,
business customers, tenants and those in debt. Companies must
inform billed customers of their rights under the scheme every year.
If a company fails to meet any of the guaranteed standards, it
must make a payment to affected customers. Standards cover areas
such as:
a. making and keeping appointments;
b. responding to account
queries;
c. responding to complaints;
d. interruptions to
the water supply; and
e. informing customers about
interruptions to water supply.
Ofwat monitors companies' performance against the customer
service standards. Companies report their performance under the
GSS to the regulator in an annual return (the June return).
14. Performance standards required in the GSS are set out in the
Water Supply and Sewerage Services (Customer Service Standards)
Regulations 1989 No.1159 and subsequent amendments Nos. 1383, 500,
3065, 2301 and 2035. Further information about the GSS can be
found in Information Note: Guaranteed Standards Scheme, which is
available on the Ofwat website, http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsByTitle/gss_0607.pdf/$FILE/gss_0607.pdf
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