SEVERN TRENT WATER has escaped a fine of up to £100 million — or 10 per cent of its annual turnover — for deliberately miscalculating data because the irregularities occurred before new powers were given to the water regulator.

However, the water company will have to pay a penalty, the size of which is to be determined, on top of the £42 million that it has agreed to return to customers.

Severn Trent has already returned £3 to each of its four million customers and has agreed to offer an average rebate this year of £4. Over the next three years it will refund an additional £2 to £3 per customer.

The rebates come after Severn Trent was found to have provided Ofwat, the water regulator, data that was either deliberately miscalculated or poorly supported. This meant that the amount Severn Trent was allowed to raise its bills by from last April was higher than it should have been, Ofwat said.

It is the first time a water company has been found to have deliberately miscalculated the data it supplies to the regulator. Since the problems at Severn Trent came to light in 2004, Ofwat has written to warn the UK’s 23 water companies that they may face criminal action if they give false information to the regulator.

Philip Fletcher, the water regulator, told The Times yesterday that customers could still have every confidence that they were being charged the right amount for water. “To the best of my belief customers are now paying the right prices,” he said.

However, he added a proviso because a second water company, Southern Water, is also being investigated for data irregularities.

“It’s very disappointing that we should find that the information we based things on was not as good as it should have been,” Mr Fletcher said. “Customers have the right to expect companies to maintain the highest governance standards, including effective processes and controls, at all times. Severn Trent Water’s approach fell significantly below these standards.”

An Ofwat source said that no evidence was found to link the board of Severn Trent to the failures of its water company. “A senior member, not a board director, was aware but didn’t raise any concerns,” the source said.

Ofwat’s investigations began after David Donnelly, a Severn Trent employee, “blew the whistle” on the company, alleging that he was forced to change forecasts to help it to “fix” vital regulatory submissions.

The regulator alerted the Serious Fraud Office last year to problems over water leakage data. A criminal investigation is under way and Ofwat will hold back from demanding a penalty from Severn Trent until the SFO’s inquiries are completed.

Colin Matthews, chief executive of Severn Trent, said: “We apologise unreservedly to customers and Ofwat for weaknesses in Severn Trent Water’s internal processes and systems of control during 2000 to 2004. Price limits were set in 2004 which unintentionally could have resulted in customers paying £8 million a year too much over the five-year period had the new management team not acted.”

Severn Trent said that a number of employees had been disciplined as a result of its own investigations. It had made major changes to its organisation, people and processes.

Senior staff who have left water group

SINCE the discrepancies at Severn Trent emerged, four senior managers have left the company.

Sir David Arculus departed after nine years as chairman to take up that role at O2, a job that disappeared when the mobile operator was bought by Telefónica. Sir David has recently joined the board of Pearson and is understood to be hunting for a FTSE 100 chairmanship. He will become President of the CBI this year.

Robert Walker, the former chief executive of Severn Trent, left last year when he reached 60, the company’s normal retirement age. Brian Duckworth, head of the water business, also retired and Mark Wilson, the finance director, resigned last December after ten years with the company.

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