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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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As one of Severn Trent's customers I now look forward to a sharp hike in my next water bill to contribute to its fine to a government regulator. A sneaky stealth tax, OFWAT?
Paul, Coventry,
Where does the fine go? "if its paid" I guess its more for Brown to waste. What about the customers who were robbed by these crooks?!
Bill Luke, st helens, merseyside
This shows that the government have lost control and industry will do what it likes, regardless of the consequences.
A water company to pulling a trick like this is frightening. What will they do in the future? With-hold water under a false pretext?
Mark, Yorkshire,
Deduct the fine from shareholders' dividends. The shareholders will then deal with the board.
John, Colchester,
The problem with this and other criminal acts perpetrated by a company, such as manslaughter, is that the only possible punishment is a fine.
The fine just comes off the bottom line, and in the long run is paid for by its customers, thus adding insult to injury.
Surely the answer is for the courts to penalise the company directors en masse. If a whole board was automatically disqualified from being directors, then there would be a strong incentive for the whole lot of them to behave cohesively as a responsible body.
Steve S, Wiltshire, UK
I reported a leak to Severn Trent via their web site some two weeks ago.
a) I've heard nothing despite entering the location and my phone number.
b) The leak gets worse by the day and has caused big, icy patches in the road the last few days.
The last time I reported a leak(not the same one) I did get a call and explained exactly where it was, giving road/lane names to someone the other end of the phone who was looking at an OS map on line. 5/6 weeks later I had a call telling me that they had located it (in a completely different lane to the one they were directed to) and it wasn't a leak but just run-off from the field. A further 2 months later they did get the leak repaired.
AWilliams, Cradley Heath,
Where does the money go to now, is it just a bit more sneaky tax for the Chancellor. Why are they not made to reduce the charges to the consumers instead.
B Watkin, andover, U.K.
What about the £35.8 million being returned to the customers?
Once Ofwat get it, where does the money go?
Roger Morris, Torrington, U.K.
Thats right blame those that have moved on. If it is fraud why are prison sentences not on the cards.
What's the point in this fine? We all know they will have the consummer pay.
Why is a company that is providing our life blood allowed to amass such an amount of money from us?
Bob, Warrington, Cheshire
If the fine is £35.8M then this is the amount that should be returned to customers. If the balance above the £10M that the company say they will return to customers goes into the exchequer, then this is another stealth tax.
Rip-off the public and give the proceeds to the Government.
J Rose (Mr), Birmingham, West Midlands
Perhaps if CEO's were held to be criminally responsible for the actions of the Companies they run, this sort thing might not happen in the future. Nothing like a couple of years in jail to help CEO's get focused.
Tom O'Neill, Ballymena, Co. Antrim
Here we go again....
Record fine is the headline....
But who really pays....is their revenue not derived from the customer?
Therefore any fines they receive( record or otherwise) will only
be paid for in higher bills????
Heads rolling......people being imprisoned for fraud....
THAT IS THE ONLY PUNISHMENT FOR THE CRIME!
Andy C
Andy Cherington, Southam, UK
So, Does the fine money get discounted back to the customers or does the government get it?
ian huntington, heysham, lancs.
Surely the people to suffer are the customers of Severn Trent who have had to pay for the leakage for years.
Last time Severn Water gave me a rebate, it was for 96p, equivalent to 1,200L of water, my usage is approximately 320,000L a year that rebate equated to a leakage rate of 0.3%. On this occasion it's £2.40, 3000L of water or a leakage rate of 1%. An estimate that anyone in the industry would find ludicrous, the true rate of leakage could equal total usage as with Thames Water.
Isn't it also plainly wrong that Ofwat should benefit rather then the customers who have paid the higher charges for years. They and not Ofwat and should have the fine plus the Severn Trent contribution included in the current rebate!
James R, West Midlands, UK
It does appear that the blame for this lies with the previous management team. Mr Wray & his new team brought the problem to the attention of Ofwat as soon as they uncovered the details, and should be acknowledged for that action.
However, what penalties should be imposed on the former directors? Maybe they should be disqualified from holding office as company directors, and any public office.
Jerry Latham, Uttoxeter, England