Thames Water has been hit with a record £104m fine over environmental breaches involving sewage spills, after failing to operate and manage its treatment works and wastewater networks effectively.
The water regulator for England and Wales, Ofwat, confirmed on Wednesday that – on top of penalties for breaches related to dividend payouts – it was issuing the beleaguered water company with £123m worth of fines that would be “paid by the company and its investors, and not by customers”.
Ofwat said its investigation uncovered failings around the company’s handling of sewage and wastewater, which amounted to a “significant breach” of Thames Water’s legal obligations. The regulator added that it had caused an unacceptable impact on the environment and customers.
“The company also failed to come up with an acceptable redress package that would have benefited the environment, so we have imposed a significant financial penalty,” the Ofwat chief executive, David Black, said. “This decision provides certainty for the company for both its past failures and what we expect from the company to comply with its obligations in future.”
Thames Water is in the process of trying to find new buyers that would fund its turnaround, with Ofwat saying it provided an “opportunity to break with the past”.
However, the utility company is under a much tighter leash and will now face restrictions over how it distributes cash to shareholders, including any future owners.
Ofwat confirmed that it was also fining Thames £18.2m for breaking dividend rules, the first ever penalty of its kind in the industry. It said the company paid out cash to investors despite having fallen short in its services to customers and its environmental record. The fine was first reported by the Guardian in December.
Black said: “We are clear that dividends must be linked to performance for customers and the environment. We will not stand by when companies pay undeserved dividends to their shareholders.”
The company is under a “cash lock-up”, after its credit rating recently fell below investment grade. That forces bosses to ask formal permission before giving any more cash to shareholders, until Thames’s credit ratings improve and it meets further requirements in its licence.
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The environment secretary, Steve Reed, said the penalties together represented the “toughest crackdown on water companies in history.”
He added: “Last week we announced a record 81 criminal investigations have been launched into water companies. Today Ofwat announce the largest fine ever handed to a water company in history. The era of profiting from failure is over.”
James Wallace, the chief executive of River Action, called for Thames Water to be put into a special administration regime.
He said: “What a miserable mess. Thames Water poured sewage into our rivers for nearly 300,000 hours last year while racking up over £22bn in debt. It has ripped off customers, damaged the environment, and failed to invest in solutions.
“At last, we are seeing a government using the law and punishing a major polluter. But nothing will change unless the privatisation of Thames Water stops. The secretary of state for Defra must now put this failing company into special administration and restructure its ownership and governance so it can be owned by and operated for public benefit. Only then will the River Thames and customers see an end to pollution for profit.”
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