Regulator Ofwat is recommending a £34.7m fine for Severn Trent (nearly 3% of its turnover) for deliberately misreporting its water leakage levels to justify higher prices, plus a further £1.1m for bad customer service. And that might not be the last of it – the water company is also facing criminal charges, which could lead to another court-imposed fine. Ofwat said its behaviour was ‘unacceptable’ and suggested that the size of the fine ‘sends a clear message to the water sector [that] companies must comply with their legal obligations or pay the price’.
What’s worse, it can’t even employ the trick these companies usually favour when they get a slap on the wrists and a big fine from the regulator: pass it on to us lot. As part of the ruling, it’s also agreed to cut the water bills of its 8m customers by £2.40 for the next two years (don’t spend it all at once, folks), to make sure that it doesn’t profit from the fraud. Though call us old cynics, but we wouldn’t be surprised to see hefty price hikes thereafter – after all, where else is this money going to come from?
In such circumstances, you might expect the management of the firm to fall gracefully on their collective sword. But in Severn Trent’s case, the current regime is washing its hands of the matter entirely, blaming the whole thing on the last lot. CEO Tony Wray (who took over in 2005) said his team ‘fully acknowledge and accept that the Company is responsible for its failures’, but pointed the finger at ‘the previous regime… [which] was overly bureaucratic and lacked sufficient controls and procedures’. In fact, his new management team had shopped the company to Ofwat as soon as they realised what was going on, he said.
Although the whole episode is horribly embarrassing to Severn Trent, Wray seems to be doing a good job of turning it to his advantage. By positioning himself and his team as crusaders swooping in to clear out the Augean mess left by their predecessors, he’s probably strengthened his own position and sent a message to customers that there’s a new sheriff in town. And since he’s also offering them lower water bills, we reckon there’s a good chance they’ll forgive him.
So although Severn Trent will undoubtedly end up ‘taking a bath’ on its attempted fraud, it seems pretty likely that its customers in the Midlands will keep taking them too...