Thames spared enforcement but is hit with £18m fine for dividend payments

Ofwat has given notice that it intends to fine Thames Water £18m for paying out two dividends in contravention of Condition P30 of its licence.

The contravention concerns:

• An October 2023 interim dividend of £37.5m to holdco Thames Water Utilities Holdings Limited (TWUL).

• A March 2024 dividend payment amounting to £158.3m.

In both cases, the Thames board said it had considered and met all its legal and regulatory obligations. It is therefore expected to challenge the decision.

The fine is 0.75% of the company’s relevant turnover,  which Ofwat noted was discounted from the starting position of 1% given this is the first use of regulatory action under P30. It emphasised, though: “This mitigation would not apply in relation to any future breaches and companies should expect us to step up the sanctions we impose for breaches of this nature.”

Thames was also spared an enforcement order. Ofwat said this was because the firm has been in cash lock up since April 2024 (and so cannot pay any further dividends without Ofwat’s consent), and because it has now updated its dividend policy to reflect the changes introduced under P30.

The regulator further explained: “In relation to the March 2024 dividend payments and our concern that the surrender of tax losses by TWUL to other Kemble Group companies has resulted in the extraction of value from the regulated company, Ofwat has the ability to recover this value, via an adjustment in the price control, to ensure that customers are protected.

“Under a policy introduced in PR19, Ofwat can deduct the full value of any tax losses surrendered by TWUL to its group companies from current and future tax allowances which are paid for by customers. We indicated in our draft determination that we intended to log the value of the tax losses surrendered for the 2020-25 period in the PR24 final determination. Our final determination confirms that we have held over the tax losses surrendered by Thames Water into PR29 to ensure that they are available to offset against future tax allowances. This will also ensure that customers do not lose out as a result of the losses being transferred out of TWUL that could otherwise be offset against its tax liabilities in the future.”