Thames Water is being investigated by the water regulator for England and Wales, Ofwat, after the struggling company delayed environmental improvement schemes.
The investigation was launched after the Guardian revealed that the UK’s largest water company intentionally diverted millions of pounds pledged for environmental clean-ups towards other costs, including bonuses and dividends.
Ofwat opened an enforcement case into Thames Water to decide whether the company breached its obligations in failing to deliver 100 out of 812 schemes it was supposed to put in place between 2020 and 2025.
These environmental measures are part of the water industry national environmental programme (Winep) and they include protecting and enhancing rivers, upgrading sewage systems to reduce spills, cutting the amount of water abstracted from rivers and improving the safety and quality of designated bathing sites.
Water companies have to deliver these on time as part of their statutory requirements with the regulator. Failure to do so means enforcement action can be taken, including the imposition of fines. The Winep deal is a condition for water companies being able to increase bills.
Water bills in England and Wales will rise by 36% on average over the next five years, with Ofwat allowing Thames to raise them by 35%. However, the company, which is on the verge of financial collapse, is considering appealing against that decision, after it asked for a 59% increase.
Lynn Parker, the senior director for enforcement at Ofwat, said: “Customers have paid for Thames Water to carry out these essential environmental schemes. We take any indication that water companies are not meeting their legal obligations very seriously. Therefore, we have launched an investigation to understand whether the delayed delivery of environmental schemes means that Thames Water has breached its obligations.”
Thames has been mired in problems for months. The company faces serious financial issues and is labouring under about £19bn of debt, with speculation rife over whether it can survive in its current form or whether it may have to be put into special administration, effectively temporary nationalisation.
The company is awaiting approval from the high court in London for a further debt package worth up to £3bn. That deal, which is led by a mixture of big financial institutions alongside hedge funds, would allow Thames to survive beyond the end of March. However, the company will still need as much as £7bn of further equity investment, according to that group of investors.
Thames and the investors are desperate to avoid special administration. Advisers to Thames have said that more fines are likely if its financial turmoil delays investments further.
Consumer groups are concerned that the failure to deliver environmental schemes, which are supposed to be paid for with funds from water bills, will mean that households in the Thames area will have to pay twice.
Matthew Topham, the lead campaigner at We Own It, which wants the government to nationalise Thames Water, said: “To protect the interests of shareholder and creditors, the board have put the safety of Londoners and Thames Valley residents, and our environment, at risk. It’s official: privatised water can only continue to function by cheating the public.
“We should not have to pay again for infrastructure we have already paid for.”
Thames Water denied anyone would have to pay twice and said the company remained committed to its environmental pledges. In its response to the Guardian’s report in December, Thames said sharp increases in its costs, such as for energy and chemicals – which it claims went beyond standard measures of inflation – lay behind its decisions to delay the works.
A Thames spokesperson said: “We note Ofwat’s decision to open an enforcement case into the delayed delivery of Winep7 and will cooperate fully. Customers will not pay twice for investment that has already been funded through customer bills.
“We’ve been very open about the challenges of delivering all the elements of our Winep7 programme, which has been impacted by cost increases that are higher than the inflation index applied to our allowances. We informed Ofwat of this in August 2023. We remain committed to delivering all our Winep commitments.”
