Ofwat locks in leakage penalties for Thames

Following a consultation period, Ofwat last week confirmed that it will impose the £120m payment and penalty package on Thames Water it consulted on in June for leakage failures.

Thames 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 legal obligations through poor leakage management.

The regulator 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.

Ofwat chief executive, Rachel Fletcher (pictured), said: “The formal undertakings from Thames Water to improve its board’s oversight and determination to get on top of leakage are an important commitment because the failures we found were failures of leadership. Thames Water has now accepted that it needs to address this head-on and we will monitor closely how it does so.

“This case provides important lessons for all water companies about Board leadership and assurance of their statutory obligations – it is another reminder that, if companies fall short, we will step in.”