Photo description: Tower Bridge straddling the Thames. Image by Albrecht Fietz / Pixabay
Thames Water has been fined a total of £122.7m for breaching rules over sewage spills and shareholder payouts, as Ofwat finalised both the penalty and enforcement order which have been imposed on the company.
A £104.5m penalty has been issued for breaches of rules connected to Thames’s sewage operations, the largest penalty Ofwat has ever issued. This is equivalent to 9% of Thames Water’s turnover, just below the maximum 10% Ofwat could have applied.
While water companies are allowed to release untreated sewage into storm overflows when it rains heavily, to prevent homes being flooded, Ofwat said its findings suggested three quarters of Thames Water’s storm overflows were spilling “routinely and not in exceptional circumstances“.
The regulator also said Thames will also pay an additional penalty of £18.2m for breaches of rules relating to dividend payments. One such payment worth £37.5m made in October 2023 to the firm’s holding company and another £131.3m dividend made in March 2024, were found to have broken the rules.
The regulator said the shareholder payouts were “undeserved” and did “not properly reflect the company’s delivery performance“.
This is the first time the regulator has fined a water company for shareholder dividends, adding to long-running criticism that Thames paid out billions in dividends over years instead of investing more cash in water infrastructure. Just this month Thames faced backlash after revealing it was planning on paying shareholders out of a £3 billion emergency loan package, a move that was later blocked.
Company and investors will pay, not customers
Ofwat said the company had “let down its customers and failed to protect the environment” and confirmed the fines would be paid by the company and its investors, and not by customers who were hit with water bill increases last month.
Thames Water said the company took its “responsibility towards the environment very seriously”, and added it was continuing its search for new investment as it struggles under a £20bn debt pile. Thames is currently under a “cash lock-up” after its credit rating fell below investment grade, which restricts how it distributes cash to investors, including any future owners. Bosses must ask formal permission before giving any more cash to shareholders, until its ratings improve and it meets further requirements in its licence.
It is still in talks with its preferred bidder, the US private equity group KKR, to take a stake in the business. As part of a rescue package being put together by Thames Water chairman Adrian Montague, New York-based KKR is preparing to pump £4 billion in equity and loans into the business.