UK: SFO to investigate Southern Water

The Serious Fraud Office today announced an investigation into whether Southern Water deliberately misled the water regulator, Ofwat, about its failure to meet customer service standards.

Southern admitted that figures it provided to Ofwat relating to response times for billing inquiries and service complaints from customers were inaccurate. As a result, it may have failed to pay customers compensation, as water utilities are required to do if they fall short of standards under the industry's Guaranteed Standards Scheme.

Southern, which was informed of the investigation by the SFO on yesterday, said it would cooperate with the investigation, which could lead to a prosecution.

The privately held company, whose biggest shareholders include Royal Bank of Scotland, supplies 2.3 million people in Kent, Sussex and Hampshire and provides sewerage services to 4.5 million.

The inconsistencies were discovered last October when a new management team took over at the company and informed Ofwat, which subsequently referred the matter to the SFO.

Separately, Ofwat announced that it planned to fine Thames Water up to £140m for failing to provide an adequate service to its eight million customers in the south-east of England. Thames also failed to pay customers compensation, but there is no suggestion that it deliberately misrepresented itself to Ofwat.

Since April Ofwat has had the power to impose a fine on water companies of up to 10% of their turnover. Thames, which is owned by German group RWE, had a turnover of £1.4bn last year, up more than 18% on the previous year. The fine cannot be recouped from customers.

Southern and Severn Trent Water are already also facing fines for customer service failures, and the SFO is also investigating Severn Trent.

Last month Thames, whose pre-tax profits increased by almost a third to £346m, announced that it had failed to meet targets for reducing leakages for the third year in a row, but escaped a fine after it agreed to increase investment in its antiquated network of pipelines.

Ofwat and Thames Water have appointed Ernst & Young to carry out an independent investigation. Ofwat said today it would consider what further action it needed to take, including the amount of the fine to be imposed, after the investigation had been completed.

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