Thames Water will not be fined for leakage
Thames Water has got away without a fine for missing its annual leakage targets, it emerged on Tuesday, after water services regulator Ofwat ordered it to spend an extra £150m on replacing old water pipes instead.The water company's failure to meet targets for the third year in a row caused a public outcry last week, made worse by a parallel announcement of a 31% rise in annual profits (see related story).
Having already allocated £1bn to replacing 1,235km of its aging pipe network over the 2005-2010 regulatory period, the company is now legally obliged to spend an additional £150m. The money will fund at least 368km more in replacements.
Philip Fletcher, chairman of Ofwat, justified the decision by saying that the extra investment will serve customers better than a fine would: "Thames has bound itself to spend an extra £150 million, at the cost of its own shareholders, to replace more ageing pipes than planned. This will directly address the issue of London leakage and achieve more secure supplies.
"It is more than double the maximum possible fine which the regulator could have imposed. A fine would not have gone to protect customers, but to the Exchequer. This is the right answer for Thames' customers and for London," he said.
Environment minister Ian Mr Pearson agreed that "it is right that the consumer does not bear the burden of the increased investment needed for Thames Water to deal with its failure to meet its leakage targets."
Ofwat also raised the company's leakage targets for the next two years to more "realistic" levels given current leakage. The targets will nevertheless culminate in an end goal for 2010 that is slightly higher than the previous one, cutting current leakage levels of 894 million litres per day by 20% to 720m litres per day.
Jeremy Pelczer, managing director of Thames Water Utilities, said: "Despite meeting our leakage target outside London, leakage in the capital remains unacceptably high, and we acknowledge that more work needs to be done to continue to reduce it.
"In addition to the £1 billion we are already committed to spend on leakage reduction in this regulatory period (2005-2010), the extra investment of £150 million announced by Ofwat today will be funded by shareholders and will accelerate our Victorian Mains Replacement (VMR) programme."
Liberal Democrat environment spokesman Chris Huhne MP criticized Ofwat for its failure to impose a fine, saying it is "playing patsy again."
"If Ofwat lets Thames Water get away with this, every other water company is going to be queuing up to take advantage of its customers in the same outrageous manner," he said.
Consumer groups have also raised concerns about Ofwat's choice of auditor used to work out the level of Thames Water's fine. Halcrow Management Science, commissioned to carry out an "independent" report that informed Ofwat's decision, has Thames Water as one its main clients, prompting objections from the Consumer Council for Water.
See the Ofwat website for more details.