How did Thames Water get here, and what does it mean for its customers? 

Since June 2017, Ofwat has been investigating Thames Water for its failure to tackle leakage. Today, we announced that we're intending to accept a package of measures that Thames Water has proposed – measures that will make sure Thames Water addresses its failures. Thames Water has agreed to pay £65m back to customers, and the full package of payments and penalties is worth £120m.

This means that customers will get a total rebate of around £15 over the next two years.

It’s a conclusion that’s at the very core of what a regulator, like us, does and can do – we hold water companies to account, and take action if they break their legal obligations.

Thames Water, in this case, broke the rules – so we’re taking action.

As a regulator, our job is to hold companies to account and to ensure that they deliver for their customers. Sometimes they fall short. When they do, we step in.

There's no 'one size fits all’ approach for intervention, and we have a range of tools and powers we can use. In order for us to get the right outcome for customers as quickly as possible, we have to judge what the best way forward will be – this means reaching into our toolkit and figuring out what will deliver the best outcome for customers.

Sometimes, that means starting a dialogue with companies about particular problems and telling them to sort it all out. But sometimes we need to use more formal powers – our enforcement powers. As a result, we might fine companies, which means the money goes back to the Treasury; or we might reach a settlement where the company commits to how it will meet its legal obligations and how it will compensate customers for its shortcomings. In this case, the money can go back to customers as a rebate on their bills.

The latter is the case here, with Thames Water.

One of the ways that we make sure companies are performing well and acting in the interest of customers is through 'performance commitments', which are exactly what they say on the tin – the commitments that companies make to their customers for the services they deliver. These can encompass any number of things, from innovative new ideas to targets that they agree with customers.

Leakage reduction is the performance commitment we’re concerned with here – and in this case, when Thames Water published its annual report in 2017, it failed to meet its commitment for 2016-2017.

The first consequence was that Thames Water was automatically penalised £8.55m – a penalty they can’t pass on to customers. The second was that because Thames Water missed its performance commitment by so much, we opened an investigation, to see if we needed to take enforcement action over and above this £8.55m.

Our investigation found that Thames Water had breached two of its legal obligations through its failure to tackle leakage.

The first area was its duty to develop and maintain an efficient, economic system of water supply, which can be found in the Water Industry Act 1991. Part of this includes looking after its infrastructure – pipes, water mains – properly, including dealing effectively with leakage.

The second area was a licence condition. Licence conditions are, essentially, ground rules for how water companies operate – they're the ways the company has to act and the things the company has to do in order to keep their ability to supply water and wastewater. This licence condition is called 'condition F’, and it relates to management and planning. We found that Thames Water didn’t have adequate management resources, nor systems of planning and control, including at Board level, in order to manage its leakage.

There was evidence that Thames Water wasn’t doing enough in either of these areas – so we agreed on a package of payments and penalties as a result.

This is a draft decision, so the first thing to happen is that we'll take into consideration any responses to the consultation. Once that process is finished, we’ll make a final decision.

If this package goes through, there are two important things for customers to know. The first is that they’ll get a rebate – in effect, Thames Water customers will be about £15 better off over the next two years, and about £26 up to 2025.

The second is that Thames Water has committed to doing better on leakage. It let customers down, so now we’re watching even more closely than usual. Every month, Thames Water will publish its performance – appointing an independent monitor to do so. It’ll push itself to reduce leakage. And it’ll prove to us and its customers that this is happening.

Water is a vital resource. Ensuring that we take care of it is not a responsibility that should be taken lightly. In this case, Thames Water didn’t do enough. We expect the company to do better – to strive to achieve more, and to put customers’ interests at the heart of everything it does.

If Thames Water doesn’t step up, we’ll step back in.