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£18m Penalty For Thames Water over Dividend Payments

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Industry watchdog Ofwat has found that utility firm Thames Water has breached its obligations under Licence Condition P30, a relatively new condition that came into effect in May 2023 requiring companies to ensure that declared or paid dividends are done so in line with a board-approved policy.

 

This policy also needs to comply with the following principles:

 

– Dividends take account of customer service delivery and the environment, including performance levels and other obligations

– Dividends must not impair the ability of the company to finance its business, accounting for current and future investment needs and long-term financial resilience

– Dividends must reward efficiency and effective management of risks to the company.

 

In October 2023, the water company made interim dividend payments of £37.5 million in total to its holding company, Thames Water Utilities Holdings. The following March, further payments were made totalling £158.3 million, from which non-cash benefits were received.

 

On December 19th, Ofwat announced that Thames Water was in breach of its obligations under the new licence conditions, with a proposed penalty of £18.2 million imposed on the company.

 

Furthermore, the watchdog will ensure that customers don’t lose out on the £131.3 million of tax losses surrendered as part of the March 2024 dividend payment through price control adjustments.

 

Currently, Thames Water’s credit rating is below investment grade and the firm is in cash lock up, so no additional dividend payments can be made without approval from Ofwat. This arrangement will remain in place until its credit ratings improve and it meets its licence requirements.

 

David Black, Ofwat chief executive, said: “Ofwat’s £18 million penalty and clawing back the value of £131 million in unjustified dividend payments is a clear warning to the whole sector: We will take action against companies who take money out of these businesses, where performance does not merit it.”

 

Dubious practices

 

As well as making unjustified dividend payments while struggling under mounting debts to the tune of £15 billion or so, Thames Water also intentionally diverted millions of pounds that were set aside for environmental clean-ups towards costs that included dividends and bonuses, according to a new Guardian investigation.

 

Apparently, secret discussions held by senior managers involved weighing up the risk of both public and regulatory backlash if it came to light that funds for environmental improvements (such as reducing river pollution) had been spent elsewhere.

 

Staff bonuses worth hundreds of thousands of pounds were paid to staff members and tens of millions in dividends were paid as recently as March last year, while the firm cut back on its spending pledges… despite public claims that it was prioritising environmental performance improvements.

 

Meanwhile, customers continued to be charged for such works, with Ofwat only formally told that Thames Water wouldn’t be delivering on major projects in August 2023.

 

It put sharp cost increases for the likes of chemicals and energy down to why it had to delay these works… but delivery of such projects was one of the key justifications for how much it was allowed to charge billpayers.

 

When asked for an initial response on the matter by the news source, the company described the allegations as “entirely false and without merit”. A later statement was then issued that said only the allegation of secrecy was false.

 

If found to have been in breach of its permits by either Ofwat or the Environment Agency, Thames Water could be hit with criminal prosecution and unlimited fines as a result.

 

Worried about your bills?

 

Thames Water has been given the green light by Ofwat to raise bills by over 33 per cent over the next five years so, no doubt, there are many customers out there wondering how they will manage with the increase in costs.

 

If, as a business, you’re worried about bill hikes, you may want to consider switching water supplier to see if you can find a retailer that provides you with better customer service and value-added services, as well as lower bills.

 

It’s possible that you could reduce your water bills by 30 per cent or more, potentially saving yourself thousands of pounds, if you make the switch. If you’d like to find out more, get in touch with the H2o Building Services team today.

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