Severn Trent fined £35m for misreporting leakage

Severn Trent received two fines for misreporting data in July; one imposed at the Old Bailey as a result of a Serious Fraud Office investigation and another at the hands of the regulator Ofwat. The Ofwat fine, at £35.8 million was the harsher of the two, despite attracting less media attention.

Severn Trent Water has become the first utility company to be fined in a criminal court for misreporting performance data to its financial regulator.

The company was fined £2 million at London’s central criminal court, the Old Bailey, on 1 July after admitting two offences of providing false information, contrary to section 207 of the Water Industry Act 1991. The case was brought by the Serious Fraud Office which announced it was investigating the company last year (ENDS Report 395, p 8 ); a whistleblower first brought the falsehoods to light.

The charges related to Severn Trent knowingly making false statements on its leakage rates in returns to Ofwat in June 2000, June 2001 and June 2002. The company agreed to plead guilty to the charges for 2001 and 2002 and the charge for 2000 was dropped.

The court heard that the company understated its leakage figures by up to 33% to avoid bad publicity and put off substantial investment in leakage reductions.

Judge Jeremy Roberts deplored the company’s "lack of honesty and transparency in... dealings with the regulator". He indicated £4 million would be a suitable fine, but reduced this in recognition of the early guilty plea and cooperation with the investigation.

He fined Severn Trent £2 million - £750,000 for the false returns in 2001 and £1,250,000 for those in June 2002. The Serious Fraud Office was also awarded costs of £220,000.

The company’s chief executive Tony Wray blamed the errors on a "previous regime" over 2000-04. "On behalf of our customers and staff we deplore the breach of the essential trust between Severn Trent and all our stakeholders," he said. "We are already repairing that trust with the root and branch reorganisation of Severn Trent undertaken since 2005."

The fine was lower than commentators expected and well below many fines recently imposed by the regulator.

At the time of the offences, Ofwat was not able to fine companies. These powers were inserted into the Water Industry Act by the Water Act 2003.

Since the powers came into force, the regulator has used them three times - including to levy a much more substantial fine of £35.8 million on Severn Trent in July (see table).

That fine, which was the largest levied by Ofwat so far, was comprised of £34.7 million for deliberate misreporting and £1.1 million for providing substandard service.

The regulator can levy fines of up to 10% of a company’s turnover - and experience to date shows it has been much tougher than the courts.

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