Ofwat to fine Severn Trent Water £35.8 million

London - Ofwat is to fine Severn Trent Water £35.8 million - 3% of its turnover -  for deliberately providing false information to the regulator and providing a poor service to its customers. Severn Trent Water's shareholders will bear the entire cost of the proposed penalty, which cannot be passed on to its customers.

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.In setting the fine, however, Ofwat said it took account of Severn Trent Water's actions when it discovered the misreporting. It reported the situation to Ofwat, initiated an investigation and co-operated with the investigation.

According to Ofwat, the proposed fine 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 behaviour was unacceptable. The size of the proposed fine reflects how seriously Ofwat takes the deliberate misreporting of information," said Regina Finn, Ofwat chief executive. "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."

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.

Severn Trent's actions also resulted in customers paying higher bills than they should have done, with some also missing out on payments they were entitled to because performance fell below prescribed standards. Severn Trent Water is now returning money to customers by reductions in their 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.