Corporate governance failings at Thames Water have led to Ofwat more than doubling the amount the company’s shareholders have to pay back to customers for missing its leakage targets.
Thames has sustained automatic penalties of £55m under the Outcome Incentive Delivery scheme for not meeting its leakage Performance Commitments between 2016-17 and 2018-19. The company agreed to pay a further £65m after an Ofwat investigation which revealed breaches of two of legal obligations through poor leakage management.
It concluded that Thames Water’s board and management did not pay enough attention to reducing leakage and that the company underestimated the significance of its underperformance on leakage when assuring Ofwat that it was meeting its statutory obligations, one of which is to deliver an efficient and economic service.
The full £120m will be paid back to customers (£15 each) before 2020 after Ofwat brought forward the ODI penalty that would normally be settled up between 2020 and 2025. Thames has committed to getting its leakage performance back in line with its pledges in 2019-20. It will also publish monthly leakage reports which will be certified by an independent monitor, and provide Ofwat with more detailed evidence to assure that it is meeting its statutory obligations in relation to leakage and improving its management control over the delivery of core operational functions.
Sir Tony Redmond, London and South East chair for the Consumer Council for Water, said: “We are disappointed that it has taken this intervention from Ofwat for Thames Water to finally confront its poor performance on leakage, which is an issue customers really care about.
We reported in December that Thames Water had lost more than twice as much water per property each day when compared to the best performing water company. That sends completely the wrong message to consumers at a time when they are being asked to play their part in using water wisely to help protect the future of our water resources. We’ll continue to hold the company to account on its promise to improve its performance.”