One of England’s largest water companies is to give refunds to customers after a probe found it had tried to overcharge them by GBP 42 million.
All water companies must provide Ofwat with data about a variety of activities including levels of customer service and leakage rates.
Ofwat uses this data to determine how much a company can charge its customers. But it found that Severn Trent Water’s data was either ‘deliberately miscalculated’ or lacked supporting evidence.
Price limits for the water company were subsequently set higher than necessary, which would have resulted in customers being overcharged by GBP 42 million by 2009-10 – equivalent to between GBP 2 and GBP 3 each year on an average household bill.
Severn Trent Water has agreed to cut bills to return the GBP 42 million to customers. The company is returning GBP 7 million of this in bills currently being sent to customers. The rest will be returned to customers over the next three years.
However, Ofwat says the findings are sufficiently serious to warrant a further reduction in Severn Trent Water’s price limits as a penalty.
Philip Fletcher, Ofwat Director General of Water Services, said: ‘Customers have the right to expect companies to maintain the highest governance standards, including effective processes and controls, at all times. Severn Trent Water’s approach fell significantly below these standards.
‘I view very seriously the findings and the conclusions we have drawn from our investigation. I have had to take the unprecedented step of alerting the Serious Fraud Office to certain issues.
‘The poor practices we identified at Severn Trent Water cannot be remedied simply by the company returning the GBP 42 million to its customers. The findings are sufficiently serious that the company should also pay a penalty to its customers, but I cannot assess the size of this now because of the ongoing Serious Fraud Office investigation.’
Severn Trent Water’s Managing Director, Tony Wray, said: ‘We apologise unreservedly to our customers for poor internal processes and systems of control which unintentionally led to price limits for the period 2005 – 2010 being set too high.
‘Our new management team has already started to make major changes to the organisation structure, to people, and processes and controls in Severn Trent Water which should prevent anything like this happening again.
‘A number of our staff have been disciplined as a result of our own thorough internal investigation. These hearings are confidential between the company and its employees.
‘We will continue to work with Ofwat to restore confidence in the company, and we also need to work hard with our customers to ensure they understand that we have dealt with the issues that led to this position.’