Three of England’s biggest water companies, including Thames Water, are facing a combined record fine of £168m after a series of failings over sewage treatment.
Ofwat has announced proposed fines of £104m for Thames Water, £47m for Yorkshire Water, and £17m for Northumbrian Water.
The regulator said it had "uncovered a catalogue of failure" by the firms resulting in "excessive spills from storm overflows".
Ofwat chief executive David Black said: "Ofwat has uncovered a catalogue of failure by Thames Water, Yorkshire Water and Northumbrian Water in how they ran their sewage works, and this resulted in excessive spills from storm overflows.
"Our investigation has shown how they routinely released sewage into our rivers and seas, rather than ensuring that this only happens in exceptional circumstances as the law intends.
"The level of penalties we intend to impose signals both the severity of the failings and our determination to take action to ensure water companies do more to deliver cleaner rivers and seas.
"These companies need to move at pace to put things right and meet their obligations to protect customers and the environment. They also need to transform how they look after the environment and to focus on doing better in the future.”
Ofwat can fine water companies up to 10 per cent of relevant turnover, with the fine in the investigation equating to nine per cent of turnover for Thames Water, seven per cent of turnover for Yorkshire Water, and five per cent of turnover for Northumbrian Water.
In July, bosses warned that bills could shoot up by almost £100 over the next five years.
The company has warned that it could run out of money by next May if it is not allowed to put up bills by 59 per cent.
The new hike could happen between now and 2030 under plans unveiled by the industry regulator Ofwat.
The watchdog said Thames Water could increase its average household charges by 22 per cent after allowing for inflation, from £436 to £535 over five years.
This is less than the 44 per cent hike that Britain’s biggest water supplier says it needs to be able to fix its shattered finances, attract new investors, and pay for a multi-billion pound investment programme.
Thames Water is almost certain to challenge the draft determination from Ofwat for the five-year period from 2025 to the end of the decade. Thames and Ofwat officials will now go into detailed consultation ahead of a final decision on December 19.
It is the UK’s biggest water supplier, with 15 million customers. It serves households across London and the South-East.
Thames Water has struggled under a £16bn debt pile in recent years as rapidly rising interest rates have pushed up the cost of borrowing. It is facing nationalisation from the new Labour government.
But what could nationalisation actually mean for Thames Water? Here is what you need to know.
Who owns Thames Water?
The company is privately owned by a mix of people and businesses.
The consortium of pension funds and sovereign wealth funds owns the entire business.
More than 90 per cent of English water companies are owned by international investors, private equity funds, and banks
The largest shareholder as of July 2023 is the Canadian pension fund Ontario Municipal Employees Retirement System (Omers) – about 32 per cent. Other investors include China’s biggest sovereign wealth fund, China Investment Corporation – almost nine per cent; the UK’s biggest private pension fund, the Universities Superannuation Scheme – 20 per cent; and Infinity Investments, a subsidiary of the Abu Dhabi Investment Authority – 10 per cent.
Other investors, according to the Independent, include the British Columbia Investment Management Corporation (8.7 per cent); Hermes GPE (8.7 per cent); Queensland Investment Corporation (5.4 per cent); Aquila GP Inc (five per cent); and Stichting Pensioenfonds Zorg en Welzijn (2.2 per cent).
Sarah Bentley was the chief executive of Thames Water until she announced her resignation on June 28, 2023.
Bentley, who was appointed in 2020, said in May 2023 that she would give up her bonus after the company’s environmental and customer performance suffered. However, she still doubled her pay, raking in £1.5m in salary and benefits.
Chief finance officer Alastair Cochran was set to become interim co-chief executive at the end of June 2023. He will run the company along with Cathryn Ross, the former Ofwat chief executive who joined Thames Water two years ago.
Who owns other water companies?
More than 90 per cent of English water companies are owned by international investors, private equity funds, and banks. As of July 2023, here are their respective owners:
Anglian Water
Owners:
Canadian Pension Plan — 33 per cent.
Australian pension funds — 32 per cent.
Commonwealth Bank of Australia — 20 per cent.
Greater Manchester, Lancashire County, London, Merseyside and West Yorkshire Local Government Pension Funds — eight per cent.
Northumbrian Water
CK Hutchison, a group based in the Cayman Islands — 80 per cent.
Li Ka Shing Foundation, a charity foundation from Hong Kong — 20 per cent.
Privatisation was supposed to mean lower bills and a better service but the opposite has happened
Severn Trent
Blackrock Investment fund from the US — seven per cent.
Lazard Investment fund from the US — five per cent.
Legal & General Financial services company from the UK — four per cent.
Vanguard Investments fund from the US — three per cent.
Standard Life Aberdeen Investment fund from the UK — three per cent.
Maple-Brown Abbott Investment fund from Australia — three per cent.
InvescovInvestment fund from Bermuda — two per cent.
Deutsche Bank from Germany — two per cent.
State Street Corporation Investment fund from the US — two per cent.
Government of Norway Sovereign Wealth Fund from Norway — two per cent.
South West Water
Lazard Investments fund from the US — 10 per cent.
Banque Pictet, a bank from Switzerland — six per cent.
Blackrock Investment fund from the US — five per cent.
Ameriprise Financial from the US — five per cent.
Capital Group Investment fund from the US — five per cent.
Rare Infrastructure Investment fund from Australia — five per cent.
Axa Financial Services company from France — five per cent.
UBS Bank Switzerland — four per cent.
Invesco Investment fund from Bermuda — four per cent.
Legal & General Financial Services company from UK — three per cent.
Southern Water
UBS Bank from Switzerland — 22 per cent.
Institutional investors advised by JP Morgan Investment fund from US — 40 per cent.
Hermes Investment fund from the UK — 21 per cent.
Motor Trades Association of Australia and Prime superannuation funds, managed by Whitehelm Capital Pension fund from Australia — eight per cent.
Ck Hutchinson Multinational conglomerate from Bermuda — five per cent.
An unknown “infrastructure investment companies” Investment fund — five per cent
United Utilities
Lazard Investment fund from the US — eight per cent.
Blackrock Investment fund, US — five per cent.
Norges Bank, Norway — three per cent.
JK Holdings — two per cent.
Vanguard Investments fund, US — one per cent.
Government of Norway — one per cent.
Legal & General Financial services, UK — one per cent.
State Street Corporation Investment fund, US — one per cent.
Deutsche Bank, Germany — one per cent.
Bank Of New York — one per cent.
Wessex Water
The YTL Corporation from Malaysia owns 100 per cent of the company.
Yorkshire Water
Government of Singapore — 34 per cent.
Corsair Capital Investment fund, US — 30 per cent.
Deutsche Bank, Germany — 23 per cent.
New South Wales public sector pension fund, Australia — 13 per cent.
Who privatised England’s water companies?
Thames Water was, as well as all other water companies in England, privatised in 1989. Former prime minister Margaret Thatcher sold off all of the publicly owned water and sewage industry for £7.6bn.
When Mrs Thatcher privatised the water companies, she said this would “lead to a new era of investment in England’s water infrastructure”.
The water companies were put on the stock market for investment and significant amounts of Government debt were written off to allow for the new slate.
Alongside the privatisation, three separate and independent bodies were established to regulate the activities of the water and sewage companies.
These were:
- The National Rivers Authority — which took over the remaining functions, assets, and staff of the water authorities as the environmental regulator.
- The Drinking Water Inspectorate — as the regulator of drinking water quality.
- The Water Services Regulation Authority (Ofwat) — as the economic regulator.
Privatisation of water was a serious mistake and it needs to be permanently rectified
Who’s calling for water companies to be publicly owned?
Most of the British public supported renationalisation of the water industry, Sky News reported in June 2023. Sky News said YouGov found in September 2022 that 63 per cent of people asked believed it should be run “entirely in the public sector”.
We Own It, a group campaigning for the privatisation of water companies, says on its website: “English water companies work for a handful of shareholders around the world, while pouring sewage into our rivers and seas and allowing water to leak from the pipes. We should copy Scotland and France, and bring water into public ownership.
“Your private water company has a monopoly in your area and there is no market, you have no choice about the water company you use. Privatisation was supposed to mean lower bills and a better service but the opposite has happened.”
We Own It’s sentiments are echoed elsewhere.
MPs have said the water regulator Ofwat failed to properly police firms and have backed calls for water companies to become publicly owned.
Richard Fuller, the MP for North East Bedfordshire, said in Parliament in June 2023: “With Ofwat, and in other sectors with Ofgem and the Financial Conduct Authority, we have seen regulators not performing to the standards that the public, or indeed industry, would expect.”
Green Party leader Caroline Lucas has also called for change.
Speaking in Parliament, she said: “Water companies had no debt when privatised. They have since borrowed £52bn and paid £72bn in dividends. Meanwhile, we have a sewage scandal. Privatisation of water was a serious mistake and it needs to be permanently rectified.”
Union bosses have also warned that the Thames Water crisis was “indicative of the failure of the water industry’s ownership model”.
What is Ofwat?
Ofwat stands for the Water Services Regulation Authority. It is the economic regulator of the water and wastewater sector in England and Wales. Ofwat was established in 1989 as a non-ministerial government department and operates independently of the government.
The primary role of Ofwat is to protect the interests of consumers by promoting the efficient and sustainable delivery of water and wastewater services. It sets price controls, known as “price reviews,” for water companies, determining how much they can charge customers for their services over a specific period. These price reviews aim to strike a balance between ensuring fair returns for water companies and ensuring affordable prices for consumers.
Ofwat also promotes competition and innovation in the water sector. It encourages water companies to improve their efficiency, invest in infrastructure, and deliver high-quality services to customers. Ofwat holds companies accountable for their performance through various regulatory mechanisms and can take enforcement action if necessary.
Furthermore, Ofwat works to protect the environment and promote sustainable water management. It sets environmental standards for water companies, encouraging them to reduce pollution, manage water resources responsibly, and meet environmental targets.
