Severn Trent Water to repay customers

Severn Trent will be repaying its customers £42m after Ofwat found the water company had misled it in its reporting, resulting in inflated water bills.

In an interim report into allegations that first surfaced in 2004 (see related article), Ofwat found incorrect income data and intentionally miscalculated debt figures would have had customers paying £42 million more than justified by 2010.

Severn Trent overcharged its customers a total of £14m over the 2004-7 period, according to the water company’s own statement.

The company has agreed to reduce price limits and return £42m to its 3.5 million customers, Ofwat said, starting with £7m through bills currently being sent out and the remainder repaid over the next three years.

It will now have to pay a penalty on top of the amount it overcharged, although the exact sum will not be known until the Serious Fraud Office resolves further allegations of falsified leakage data that the company faces, Ofwat said.

Philip Fletcher, Director General of water services at Ofwat, commented:

“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. …”

“The poor practices we identified at Severn Trent Water cannot be remedied simply by the company returning the £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 SFO investigation.”

“Ofwat regards the findings of its investigation as sufficiently serious to warrant a further reduction in the company’s price limits as a penalty. The scale of this can only be determined once the SFO investigation is completed.”

The director general, who is the economic regulator of water and sewerage companies in England and Wales, today also wrote to all English and Welsh water companies to remind them of their obligation to provide Ofwat with complete and accurate information.

Birmingham-based Severn Trent Water reacted to Tuesday’s report by apologising and promising to repay customers.

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.”

“We also deeply regret failures in our internal processes, controls, ethics and culture. Deliberate miscalculation of data by one employee, David Donnelly, went unchallenged.”

By Goska Romanowicz

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