Welsh Water to pay £40 million following watchdog investigation

Following an investigation by Ofwat, which found Welsh Water misled customers and regulators on its performance on leakage and per capita consumption (PCC) data, the company will have to pay £40m to benefit its customers.

As a result of Ofwat’s data assurance rules, the company identified issues with its reporting and notified Ofwat.

Ofwat’s subsequent investigation found evidence that a significant failure of governance and management oversight led to the water company misreporting its leakage and PCC performance figures over a period of five years, significantly underplaying its poor performance.

As part of the proposed enforcement package, Welsh Water will have to provide £39.4m of redress for customers to compensate them for its failures.

Of this £39.4m, £15m has already been announced by Welsh Water, with another £9.4m to follow, which will lower bills for customers.

An additional £15m of costs will be absorbed by Welsh Water, rather than passed on to customers.

In addition to that customer redress, the company needs to address its poor performance on leakage and PCC and has committed to invest an additional £59m in the current 2020-25 price review period.

David Black, CEO at Ofwat said: “We need to invest tens of billions of pounds over the next 30 years to reduce pollution and ensure that our water infrastructure can grow with our population and adapt for climate change. Customers and investors will only agree to fund this if they trust water companies to provide accurate information about their performance.

“For five years, Welsh Water misled customers and regulators on its record of tackling leakage and saving water. It is simply indefensible and that is why we are making Welsh Water pay this £40m to benefit its customers.

“Today’s announcement puts the industry on notice that we have the resources and will act when companies fail to meet their obligations to customers.”

Ofwat has increased the size of its enforcement function to drive up standards in the industry, hold companies to account for their performance and to increase customer and investor confidence that companies are being run in a transparent and open manner.

Following the publication of Ofwat’s report, Welsh Water has reiterated its apology for this issue that it reported to Ofwat and began investigating in 2022.

The key conclusions of Ofwat’s report align with Welsh Water’s own investigation that was shared with the regulator in May 2023, the utility company has said.

Welsh Water said: “In March 2023, Welsh Water proposed to the regulator a customer redress package of £30m which included a £10 rebate for customers which was made during 2023.”

“In addition, it has proposed £59 million of expenditure to improve leakage and per capita consumption performance. Ofwat has accepted these proposals and issued a nominal penalty of £1.”

“The issue relating to the misreporting of this data was initially identified by Welsh Water’s annual assurance process and brought to Ofwat’s attention in 2022.”

“The company’s investigation identified failures in its governance and management oversight processes.”

“Welsh Water subsequently made changes to its processes and operational structures to address the issues identified as root causes.”

Pete Perry, Welsh Water Chief Executive said,

“We are very sorry that this happened. We proactively brought this issue to Ofwat’s attention in April 2022 having identified it as part of our annual performance assurance process. Ofwat’s key conclusions as to what went wrong align with our own investigations that were shared with Ofwat together with our proposals for customer redress and additional investment to tackle leakage and per capita consumption. Rebates have already been made to 1.4 million customers.”

“Our review identified governance and management oversight failures that led to the issues identified which have now been addressed. Achieving the planned reduction in leakage will be challenging, but we have committed a substantial increase in expenditure in this area and strengthened the relevant operational teams to recover performance.”