Severn Trent, the Midlands water company, is to plead guilty on two fraud charges today and face a £35.8 million fine from Ofwat for deliberately misleading the regulator on customer service and performance.

It will appear at the City of London Magistrates’ Court later today to answer criminal charges relating to the misreporting of data to Ofwat in 2001 and 2002. The Serious Fraud Office brought charges against the company in October last year, alleging that the company manipulated water leakage data in its annual reports to the regulator in 2001 and 2002.

The company announced today that it has decided to plead guilty to two offences but said the SFO had dropped a third charge relating to its report in 2000, Severn Trent said. The case will go to the Crown Court later this year where the judge will have the power to impose a fine on the company.

Tony Wray, Severn Trent's chief executive, said he did not know how much Severn Trent could be fined given the situation was “unchartered territory”. “This is the first time a regulated utility has found itself in this situation,” Mr Wray said.

Once a judgement is handed down, Ofwat is set to impose further sanctions in the form of imposing further restrictions on how much the company is able to charge its customers.

The Ofwat fine, which represents 3 per cent of the water company's turnover, relates to a seperate issue - the deliberate misreporting of customer service data to hide its real performance between 1997 and 2005.

The fine is the largest proposed by Ofwat since it was given the power to impose fines in 2005. However, Ofwat's £20.3 million fine for Southern Water, announced in February, represented a higher percentage of turnover at 3.6 per cent. The regulator will hold a consultation process regarding its decision over the next four weeks.

Commenting on the fine, Regina Finn, Ofwat's chief executive, said: "Severn Trent's behaviour was unacceptable. The size of the proposed fine reflects how seriously Ofwat takes the deliberate misreporting of information."

Mr Wray blamed the company's previous management regime for lacking sufficient controls.

Mr Wray said in a statement on the fine: "When my new management team and I uncovered misreporting and poor service in our customer relations department we promptly alerted Ofwat and took steps to implement proper controls and an ethical working culture with the highest standards to ensure there can be no repetition of this unacceptable behaviour.

"Without waiting for Ofwat's conclusions we are lowering bills for customers by £10.6 million, around £2.40 per household, to ensure we have not profited in any way. We fully acknowledge and accept that the Company is responsible for its failures."

Most of the fine, £34.7 million, relates to false infomation provided to Ofwat regarding customer service data such as information on how quickly the company dealt with supply interruptions and customer queries or complaints. The remainder, £1.1 million, is for providing sub-standard services to customers.

The regulator sets restrictions on how much water companies can charge their customers based on how effectively they treat their customers. By overstating its customer service performance, the water group was allowed to charge higher prices than if it had provided correct figures.

In February, Ofwat confirmed that it had fined Southern Water a total of £20.3 million for backdating letters to customers and deliberately misleading regulators.

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