Southern Water facing £20 million fineCompany deception resulted in higher bills
14 November 2007
Southern Water is facing a fine of more than £20 million after it lied to the water regulator Ofwat about its performance.
The water industry regulator said the company – which serves millions of customers in Kent, Sussex, Hampshire and the Isle of Wight – deliberately misreported information prior to October 2005 and so benefited financially - to the cost of its customers.
Ofwat added that poor processes and systems meant customers received poor service and also missed out on the compensation payments they were entitled to because of these service failures.
Ofwat said Southern Water shareholders would bear the entire cost of the proposed £20.3 million fine and that it will not be passed on to customers.
Southern Water has already paid out £1,000,000 to customers over the missed compensation payments.
Ofwat Chief Executive Regina Finn said: ‘Southern Water deliberately misreported its customer service performance to Ofwat and systematically manipulated information to conceal the company's true performance over an extended period of time.
‘The company benefited directly from this misreporting at the last two price reviews, meaning Southern was able to increase its prices by more than it should have done. Customers received higher than necessary bills because of the company's deception.
She added: ‘The magnitude of this fine reflects the magnitude of the offence - deliberately misleading the regulator, failure of the Southern Water Board of Directors to pick up the deception, the resulting poor service to customers and damage to the regulatory regime, in general.’
Southern Water has already reduced its prices to return the money it should not have received at the 2004 price review.
Bills will be reduced in 2008-09 to return the money it should not have received at the 1999 price review.
Southern Water's new management team uncovered inconsistencies in the reporting of service standards in October 2005 and alerted Ofwat and the Serious Fraud Office (SFO).
The inconsistencies related to response times for billing inquiries and service complaints from customers.
A joint investigation was then launched with Ofwat, which brought in a team of independent investigators from accountants KPMG.
Thousands of paper records were reviewed and an independent company was appointed to review nearly 13 million microfilmed records from the previous nine years.
Ofwat says the company's new management is overseeing action plans to address the issues found and that Southern Water is also returning money to customers who paid higher bills than they should have done.
Southern Water Chief Executive Les Dawson said: ‘I understand Ofwat's intention to fine us for what happened in the past.
‘Today, I would like to reassure customers that those historically entitled to guaranteed standards payments have now been paid and that we are well on course to meeting a service improvement plan agreed with the regulator.’
Southern Water said it was continuing to run a series of advertisements in the local press and on local radio to ensure customers are fully aware of the matter.
The industry watchdog, the Consumer Council for Water, said: 'We believe that the level of the fine is appropriate to the circumstances. We are also pleased to note that Southern Water’s shareholders will bear the entire cost of the fine which should not fall on the customers, who were badly served under the previous management.
'Because customers suffered from Southern Water’s shortcomings we believe that the £20.3 million fine should be used for the benefit of customers as opposed to being paid to the Treasury.
'Southern Water has accepted the fine and the Consumer Council for Water will work with them to put in place their service improvement plan as agreed with Ofwat.'