Thames Water has been fined £18.2 million by the water industry regulator, Ofwat, for breaching dividend rules.
The fine comes after the utility company made two dividend payments in 2023 and 2024 that were deemed unjustified based on its performance. This marks the first time that Ofwat has used its new powers, introduced in May 2023, to penalize water companies for paying dividends when performance does not meet regulatory criteria.
The penalty stems from Thames Water’s payment of a £37.5 million dividend last year and a £158.3 million dividend this year. Ofwat also confirmed that it will adjust its price controls to recover £131 million in unjustified dividend payments, which Thames Water had defined as a surrendered tax loss.
Ofwat’s Chief Executive, David Black, emphasized that the penalty and the clawback of funds serve as a warning to the entire sector.
“We will take action against companies who take money out of these businesses, where performance does not merit it,” he stated.
In addition to the fine, Thames Water will be allowed to raise water bills by 35% over the next five years. This increase will result in an average rise of £152 in bills for households in London and the South-East of England. While this is a significant hike, it is lower than the 44% increase Thames Water had initially sought to stabilize its financial situation.
The company, which serves 16 million customers, is facing severe financial challenges and has been seeking £3 billion in emergency funding to avoid collapse. The penalty and subsequent bill increases come at a time when Thames Water is struggling with debt and facing mounting pressure to improve its services and resolve issues such as frequent sewage spills.
A spokesperson for Thames Water expressed disagreement with Ofwat’s decision, stating that the company had made the dividend payments in accordance with its legal and regulatory obligations. They further clarified that the company would review the regulator’s determination and provide a more detailed response in early February.
Ofwat’s decision to allow Thames Water to raise its bills by 35% is part of a broader plan affecting water companies in England and Wales. The regulator has announced an average increase of £31 per year in household water bills over the next five years, meaning bills will rise to £597 on average by 2030. However, for Thames Water, this rate of increase is still below the 53% rise it had requested.
With input from Bloomberg and the Guardian.
