Thames Water fined £39m for failing to meet regulatory targets

Thames Water was hit with almost £39m in fines last year for failing to meet a range of environmental targets, with the company saying its turbulent corporate governance had damaged its reputation.

The debt-ridden company, which was placed in special measures by regulator Ofwat this week, failed to meet 21 regulatory targets last financial year in a range of areas from pollution incidents to leaks and supply disruptions, the report said.

Thames, which serves 16 million customers in London and the Thames Valley, has been fined £12 million for coming last out of 17 companies rated for customer service.

The company said that pausing brand campaigns to focus on recovery had hit its results, and that “customer perception of the company was also impacted by negative media coverage this year, including the resignation of our CEO, company debt, operational challenges and pollution fines.”

The fines came in the company’s annual results report, which was belatedly published late on Wednesday evening. The document came a day after Thames Water warned it would run out of cash by June next year without new funding, and the night before Ofwat put it into an unprecedented “turnaround supervision regime”.

Britain’s biggest water supplier could be placed under government supervision with most of its £15.2bn debt going to the public purse if it fails to raise more money to invest in ageing assets.

While the new penalties will put additional strain on the company’s balance sheet, they are unlikely to have a significant impact on its future as the company aims to raise £3.25bn of fresh capital.

Ofwat has been accused of treating customers with “disregard” after it said bill payers in England and Wales will have to pay an average of £94 more over five years as water companies try to fix sewage leaks and seepage that have enraged politicians and campaigners.

The regulator imposes penalties and rewards on English and Welsh water companies based on their performance against a number of targets throughout the year.

Sewage in Weybridge, Surrey, in April, after being discharged into the Thames by Thames Water. Photo: Maureen McLean/Rex

The largest penalty issued by Thames was £16.3m for water cuts, caused in part by a water cut in Guildford – blamed on Storm Ciarán – which left thousands without water in Surrey last year. “The weather has once again exposed the fragility of our assets,” Thames said in its report.

The company was fined £14m for failing to meet leakage standards, which was partly due to the frost in December and January; a £12m fine for increasing pollution incidents; and a £7m fine for failing to tackle flooding in internal sewers.

Overall, the total net penalties of £38.6m were down from £82.3m the previous year but up from £35m in 2021-22. Thames received financial rewards for its progress in renewable energy production and reducing sewer collapses.

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Thames Water chief executive Chris Weston, who joined the company in January, said staff were “continuing to focus on delivering our three-year recovery plan”.

The company hopes to avoid nationalisation by raising money on private markets. In his report, chairman Sir Adrian Montague said: “With the right team, time, money and resources, Chris and I believe we can turn this business around – it would be in the best interests of customers and the environment for Thames Water to remain market-focused.”

The new penalties come against a backdrop of strained relations between Ofwat and Thames, with the regulator revealing on Thursday that the company’s board members had failed to back elements of its own five-year business plan and called the costs “poorly justified”.

Thames Water also said it had to suspend a £70m “green recovery” (GER) scheme agreed during the pandemic. The scheme was designed to speed up the rollout of smart meters, with the bonus being conditional on the company meeting leakage targets. However, it blamed drought and “freeze-thaw events” for failing to meet targets.

Ofwat rejected the request to change the targets. Thames said the decision meant “we had no option but to stop the GER scheme” and admitted it would be a “disappointment” for customers.

Last year, The Guardian newspaper revealed that not a single smart meter had been installed in the Thames Valley as part of a scheme that was expected to cover 204,700 devices.