WATER SERVICES
REGULATION AUTHORITY News Release (PN 11/08) issued by The
Government News Network on 8 April 2008
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.
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 finance them.
2. Severn Trent Water is one of the largest companies, in terms
of its turnover, operating in the water industry in England and
Wales. It represents nearly 15% of total industry turnover.
3. Copies of Ofwat's proposals to impose a penalty on Severn
Trent Water are available on the Ofwat website, http://www.ofwat.gov.uk or from
the Ofwat Library by phoning 0121 625 1373.
4. Representations about or objections to the proposals to impose
penalties should be made by 5pm on Tuesday, 6 May 2008 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
5. 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). Severn Trent Water's
regulated turnover for 2006-07 was nearly £1.2 billion.
6. 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 12-month period in this
case. 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.
7. Ofwat carried out a previous investigation into Severn Trent
Water following allegations made by a then employee about false
reporting of information to the regulator. Ofwat published its
interim report into these allegations on 7 March 2006 (see press
notice PN 09/06, which is available on the Ofwat website, http://www.ofwat.gov.uk ).
Ofwat's investigation in that case found that Severn Trent
Water had provided bad debt data that was deliberately
miscalculated and that incorrect income data had been submitted
because of poor internal processes and controls. As part of that
investigation Ofwat also alerted the Serious Fraud Office (SFO) to
concerns about false leakage data being supplied to the regulator.
The SFO has decided to bring three criminal charges against Severn
Trent Water for providing false information to Ofwat between 2000
and 2002.
8. Ofwat confirmed earlier this year that it would be fining
Southern Water 3.6% of turnover (equivalent to £20.3 million) for
its deliberate misreporting of information and its failure to
meet customer service standards (see press notice PN 02/08, 8
February 2008, which is available on the Ofwat website).
9. On 9 January 2008, Ofwat announced its proposals to fine
Thames Water 0.9% of turnover (equivalent to £12.5 million) for
failing to provide robust information and for poor customer
service (see press notice PN 01/08, which is available on the
Ofwat website).
10. 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 GSS
Regulations. Companies report their performance under the GSS to
the regulator in an annual return (the June return).
11. Further information about performance standards required
under the GSS is available on the Ofwat website.
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