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The watchdog said poor processes and systems at the water supplier meant customers received poor service. Customers also missed out on the payments they were entitled to because of these service failures.

Ofwat chief executive Regina Finn explained that before October 2005 Southern Water deliberately misreported its customer service performance to Ofwat and “systematically manipulated” information to conceal the company's true performance over an extended period of time.

"The company benefited directly from this misreporting at the last two price reviews, meaning Southern was able to increase its prices by more than it should have done. Customers received higher than necessary bills because of the company's deception,” Finn added.

Prompt action

She gave assurance that Southern Water's shareholders will bear the entire cost of the fine and that it will not be passed on to its customers.

“The magnitude of this fine reflects the magnitude of the offence – deliberately misleading the regulator, failure of the Southern Water Board of Directors to pick up the deception, the resulting poor service to customers and damage to the regulatory regime, in general," she said.

Ofwat noted that the company took prompt action once it discovered the misreporting. It reported the situation to Ofwat and the Serious Fraud Office, initiated its own investigation and co-operated fully with Ofwat's investigation.

The company's new management is overseeing action plans to address the issues found and has ensured customers received payments they were entitled to. Southern is also returning money to customers who paid higher bills than they should have done.

Restrictions 

Ofwat said that these factors had been taken into account when considering the amount of the financial penalty. The £20.3 million fine breaks down as £19.8 million (3.5% of 2006-07 turnover) for deliberately misreporting and £0.47 million (0.1% of 2004-2005 turnover) for providing sub-standard services to customers.

Statutory restrictions mean Ofwat can only impose penalties for two specific one-year periods, but the regulator said that problems at Southern Water had been found to go back to before 2000. Southern has already reduced its prices to return the money it should not have received at the 2004 price review. Bills will be reduced in 2008-09 to return the money it should not have received at the 1999 price review.

On 28 September 2007, Ofwat announced its proposals to fine Thames Water a total of £12.5 million for failing to provide robust information and poor customer service. It is also proposing to impose a financial penalty on Severn Trent Water for their failures to meet customer service standards.

Related links

• Ofwat
• Southern Water