Water regulator Ofwat has been ridiculed after reports suggested fines for polluting water companies may be reduced to prevent them from financial collapse.
Ofwat is currently drawing up plans for a special regulatory status for Thames Water and other troubled water companies, which would see the firms avoid fines for dumping sewage in return for boosting infrastructure. Financial Times.
Activists criticized the proposals, saying the lighter penalties “send a dangerous message that companies can get away with pollution”.
Several English water companies are struggling with huge debt burdens, notably Thames Water, whose parent company Kemble has debts of £16bn and recently defaulted on a £400m loan.
At the same time, firms are under pressure to increase investment in their infrastructure due to public outrage over the huge volumes of raw sewage being dumped into England’s rivers, seas and lakes.
A number of firms have asked Ofwat to allow them to increase their bills by significant amounts to cover these costs. Thames Water asked for a 59 per cent rise in bills to £749 a year, while Southern Water asked for a 91 per cent rise in bills to £915.
Ofwat was due to make its first decision on the proposals on Wednesday 12 June, but this has now been delayed until after the election.
While Ofwat is believed to be on the verge of backing away from any big increase in consumer bills, it appears the regulator may now be considering reduced fines for struggling firms as an alternative.
According to Financial TimesStruggling water firms could be put into “recovery mode” by the regulator, allowing them to avoid fines and given easier targets for sewage leaks, water leaks and outages.
The proposal could initially apply to Thames Water as part of a move to prevent nationalization as the firm faces financial difficulties. However, other firms struggling with their finances, such as Southern Water, South East Water and Yorkshire Water, may also be eligible.
Such a move could appease shareholders who have argued that the tightening regulatory regime is making water companies uninvestable.
The question remains whether the regime will become a reality.
Shadow environment secretary Steve Reed said the plans would not go ahead “with a Labor government”. He said: “The work will put water companies under strict special measures. We will freeze the bonuses of law-breaking bosses until they clean up their mess.”
Environmentalists criticized the proposals, saying it would save water companies decades of investment and pollution.
“The idea that Ofwat would reduce fines for water companies while they continue to systematically break the law by illegally polluting our rivers, lakes and seas is beyond outrageous,” said Charles Watson, founder and chairman of campaign group River Action.
He said the fines were already “so pitifully small”, adding that fines imposed on water companies last year were equivalent to roughly one per cent of the amount paid out to shareholders in dividends.
Nick Measham, chief executive of WildFish, said water companies had “continued to break the law” and that Ofwat’s proposals would “let them off the hook again”.
“How out of touch do you have to be to reduce fines for water companies that have devastated our rivers and seas after such a huge public backlash?” added Kierra Box, activist of the Friends of the Earth organization.
Ali Morse, water policy manager for The Wildlife Trust, also criticized the proposals, saying water companies “need to invest up front to reduce sewage leaks quickly so penalties are not necessary.
She said that “making more use of nature-based solutions”, such as creating wetlands to capture rainwater and prevent sewer blockages, could help companies “meet environmental requirements in a more cost-effective way”.
The timing of the election means it could be up to Labor to work with Ofwat to decide what to do with Thames Water and the wider water industry.
If the party wins the election, the future of Thames Water could be one of the party’s first major challenges in government.
There is widespread public support for the nationalization of the water firm, but Labor leader Sir Keir Starmer has backed away from plans to take the struggling water companies into public ownership.
Ofwa declined to comment.