Severn Trent, Britain’s second-biggest water company, is considering whether to challenge a record £35.8 million fine by Ofwat. The water regulator imposed the fine on the company for lying about its performance, which allowed it to overcharge customers.

The company, which supplies water to 3.7 million households and business customers, was informed of the fine in a 160-page legal document yesterday. The company has four weeks to decide whether to accept the fine or to try to persuade Ofwat to lower it.

Severn Trent, which is based in Birmingham, admitted supplying false information to Ofwat for a sustained period between 1997-2005, which was then used to assess the company’s performance to decide how much to charge customers. It included misreporting key information about the number of customer complaints that the company had received and how quickly it responded to them.

Regina Finn, Ofwat chief executive, said: “Seven Trent Water’s behaviour was unacceptable. The size of the fine reflects how seriously Ofwat takes the deliberate misreporting of information. This sends a clear message to the company and the rest of the water sector — Ofwat will protect consumers and companies must comply with their legal obligations or pay the price.”

Ofwat said that the fine is equivalent to about 3 per cent of Severn Trent’s 2006/07 revenue. The company also faces the prospect of further fines for falsifying information about water leakage, after an investigation by the Serious Fraud Office.

At a hearing at City of London Magistrates’ Court yesterday, Severn Trent pleaded guilty to two criminal charges of falsifying leakage data from 2000 to 2002. The size of any further fines will be decided at a Crown Court hearing that convenes on May 6.

Tony Wray, the Severn Trent chief executive, blamed the company’s previous management and an “overly bureaucratic culture” from 2000 to 2004, which he said “lacked sufficient controls and procedures”.

Mr Wray, who was appointed chief executive in October 2006 having joined as managing director in March, 2005, said he could not estimate the size of the potential court fine. “What happened under previous regimes was unacceptable and it is our duty to make amends.”

He added that there will be no prosecution of individuals but all those involved have left the company.

In response to Ofwat’s proposed fine, Severn Trent said it had lowered its charges by £2.40 per household, or £10.6 million in total, to ensure that it has not profited in any way.

Mr Wray claimed that Severn Trent had acted promptly. “When my new management team and I uncovered misreporting and poor service in our customer relations department we immediately alerted Ofwat,” he said.

Tim Wolfenden, head of home services at uSwitch.com, the price comparison website, said: “The priority here is to ensure that consumers are not left out of pocket. Ofwat has made it clear that shareholders rather than customers will be footing this bill.

“I would like to see Ofwat go one step further. It would serve everybody’s interests if this £35.8 million fine was invested directly into improving our worn-out water systems.”

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