Thames Water faces a fine of £12.5million for failing to compensate customers for poor service and loss of water supplies. The fine covers the period between July 2005 and July 2006, but the company has admitted that it failed to deal properly with its customers for the preceding five years.

It is to appeal against the decision made by the regulator, Ofwat, and claims that paying the fine will divert cash from essential repairs.

David Bland, chairman of the Consumer Council for Water Thames, also expressed concern at the fine, which is destined for the Treasury coffers. He said that it should instead be refunded to customers or used to improve the company’s services.Ofwat says the water company is at fault because it did not make payments to households that lost water supplies; for the inconvenience of engineers failing to keep appointments; and for late handling of an account queries or written letters of complaint.

Under the Guaranteed Standards of Service set out by Ofwat, water companies must pay compensation to customers who have been let down. These are £20 for a missed appointment or failing to reply to correspondence; £20 for disrupted supply; and an extra £10 for every 24 hours without running water.

The company was fined £11.1 million for “inadequate” reporting and customer service and £1.4 million for failing to pay compensation to customers.

The penalty is high and intended as a signal to other water companies that non-compliance with the regulations is a serious matter. However, Ofwat could have imposed much heavier fines on Thames Water, since under the legislation it is allowed to fine up to 10 per cent of annual turnover, which would have been about £140 million.

Regina Finn, chief executive of Ofwat, made clear that the £12.5 million figure had taken into account the steps taken by Thames Water to remedy the situation. There was no evidence of fraud or deliberate misreporting, she said.

Experts hired by Thames Water had identified that its computer systems were not properly set up to compensate customers who had received poor service.

The company immediately admitted the problems to Ofwat and the Consumer Council for Water and paid out £420,000 to 7,880 customers for poor service during the period under investigation between July 2005 and July 2006.

It also went through its records to 2000 and identified a further 4,100 households who had not received compensation for being let down.

A total of £4.4 million was paid to households plus some £1.4 million, which included interest and a goodwill gesture of £10 per household.

There will now be a 28-day period for Thames Water to respond before Ofwat confirms the fine.

The watchdog has already announced its intention to fine Southern Water and Severn Trent Water for their failure to meet similar standards.

David Owens, chief executive of Thames Water, said: “We can see no justification for this level of fines proposed. They are totally disproportionate to any measure of the harm the original payment irregularities may had caused and disregard the steps we have taken to reimburse our customers.

“What particularly concerns us is this large sum of money could be spent directly on improving services to customers, but the only benefit will be to the Treasury. This makes little sense.”

The company insisted that the irregularities were unintentional and took place under previous ownership and management. The Consumer Council for Water backed the hefty fine but called on the Government to use the cash to benefit customers. Shareholders rather than customers will bear the burden of the fine, the organisation said.

Chris Huhne, the Liberal Democrats’ environment spokesman, said that the fine was well deserved. “It seems Thames Water can always be relied upon to let you down.”

He criticised their high prices, leakage rates, pollution record, poor customer service and inadequate report-ing.It is believed that Ofwat was anxious to show its teeth and impose a large fine after being criticised by the National Audit Office earlier this year for failing to hold Thames Water to account for its appalling leakage rate.

At its worst, Thames lost more than 1,000 megalitres a day – enough to fill more than 500 Olympic-sized swimming pools for every 24 hours, or to supply an extra three million houses every year.

Even though the company missed its leakage targets over a five-year period Ofwat responded by allowing it to leak even more and reducing the leakage targets.

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