Thames Water could face a fine of up to £140m for failing to provide a good service to its eight million customers in the south-east of England.
Water regulator Ofwat said today it proposed to fine Thames Water, which it said had failed to achieve required customer service standards since July 2005. It said Thames Water had also failed to pay compensation to customers, as water suppliers are required to if they fall short of standards.
Since April Ofwat has had the power to fine water companies up to 10% of their turnover. Last year Thames's turnover was £1.4bn, up more than 18% on the previous year.
Last month Thames Water announced that it had had failed to meet targets set by Ofwat for reducing leakages for the third year in a row. Leakages fell short of the target by 34m litres - or enough water to fill 14 Olympic-sized swimming pools. At the same time it announced it had increased pre-tax profits by almost a third to £346m.
Today Ofwat was once again scathing in its criticism of Thames.
"It is extremely disappointing that we have had to take this action against Thames Water for its customer service failures, coming on top of the company's breach of its leakage target," said Ofwat chairman Philip Fletcher. "This is a clear warning to Thames Water that it must be focused on delivering the services that customers have paid for."
Thames says it is investing heavily to modernise its antiquated network of underground pipes, many of which date from the Victorian era, but it is still losing almost 900m litres of water a day. Thames is increasing water bills by 24% over the next five years.
It has already imposed a hosepipe ban on its domestic customers and is now also seeking a drought order in London, which would enable it to impose further restrictions on the use of water.
Last month Ofwat said it was "unacceptable" that customers were being forced to pay higher prices without getting all the benefits the company had promised to deliver.
Ofwat announced in January that Thames Water, which is owned by German group RWE, had failed meet required performance standards.
Following the announcement Ofwat and Thames Water appointed Ernst & Young to investigate the failings. Ofwat said today it would consider what further action it needed to take, including the amount of any fine to be imposed, after the investigation was completed.
Thames Water issued a brief statement, saying that it regretted the mistakes that had been made, and apologised to affected customers. It said it would pay customers compensation after the investigation had been completed.
Two other water providers, Southern Water and Severn Trent Water, are also facing fines for customer service failures.
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