Thames Water will have to pay an £18.2m fine after the water industry regulator confirmed the troubled utility breached dividend rules.
The Guardian revealed on Wednesday that Thames will be penalized for two dividend payments in 2023 and 2024, which will increase the water utility’s bill by just over a third. Industry regulator Ofwat confirmed the fines and bill rises on Thursday.
This is the first time Ofwat has used its new powers to take action against companies that pay dividends regardless of performance.
The rules, introduced in May 2023, aim to prevent companies from paying dividends that cannot be justified by Ofwat performance measures. The regulator said Thames “failed to comply with these regulations”.
A Thames spokesman said the company disagreed with Ofwat’s decision and would respond fully in due course.
“We take our licensing obligations, including those related to the declaration and payment of dividends, very seriously,” the spokesperson said, adding that the company only made the payment “after taking into account the company’s legal and regulatory obligations.”
Separately, Ofwat said water bills for millions of customers in London and southeast England will increase by an average of £152 over the next five years.
Water industry regulator Ofwat said on Thursday that embattled utility Thames will be allowed to increase water bills by 35% until 2030 in its much-anticipated “final decision” on England and Wales Water’s business plan. %. This means a 35% increase after inflation, which will be added to the above. This means millions of customers in London and the south-east of England will see their water bills increase by an average of £152 over the next five years.
The company was hit with an £18m fine for dividends of £37.5m paid last year and £158.3m this year.
Ofwat said it would also “recover value” by adjusting price controls to recoup £131m of dividend payments, which Thames defines as refunded tax losses.
David Black, chief executive of Ofwat, said: “Ofwat’s £18 million fine and recovery of £131 million worth of unjustified dividend payments is a clear warning to the entire industry that we will take action against companies that receive funds from these businesses, including The performance isn’t worth it.
The decision is crucial in determining the future of the debt-laden company, which is trying to secure £3bn of emergency funding and a further £3.25bn of equity investment to prevent its collapse.
In its initial decision on the Thames Business Plan in July, Ofwat rejected the company’s request for a 44% increase in electricity bills over the next five years, saying it would only allow 22%, equivalent to an average increase of £99 to £535.
Thames later said that not allowing the 59% increase in bills – which would average £228 by 2030 – “would also hamper the company’s turnaround and recovery” as relations with Ofwat appear to be increasingly strained.
In March, investors pulled the plug on a £500m funding round, saying regulators had left Thames shareholders “unable to invest”.
In a statement, the company said: “Given its importance and complexity, Thames Water will take time to review this decision in detail before responding. The company will set out customer charges applicable from April 2025 in early February. .
Thames, which has 16 million customers, won court approval this week to secure a “crucial” £3 billion cash lifeline, but risks falling into caretaker administration if the company collapses. Further court approval is needed to finalize the emergency funding.
Ofwat said bills across the industry will rise by an average of £31 a year over the next five years, to £597. Customers at troubled Southern Water will experience the biggest increase, with their bills rising 53% in five years to £642.
Thames and Southern Water have some special conditions. They will be allowed to add an extra £11 and £20 to their bills respectively by 2030, but only if they can show how and when some service improvements will be delivered.
Regulators are still working out some of the details of those conditions and how they will govern access to these additional funds.
Ofwat senior director Chris Walters said the issues would be clarified in the new year.