Ofwa, the water regulator for England and Wales, is understood to be considering reducing fines for water companies discharging waste water if they face financial pressures.
According to the Financial Times, which first reported the plan, the regulator intends to put together a “recovery regime” for Thames Water, which is facing collapse or restructuring due to high debts, and others in a similar position.
Under the proposals, companies could face fewer or no fines for water outages and sewage leaks and could instead be encouraged to invest in infrastructure in a bid to reduce the threat of nationalisation. Other debt-ridden water companies, including Southern Water, South East Water and Yorkshire Water, may also be eligible for the recovery scheme.
The water industry has long lobbied for such measures, with sources telling ministers and journalists that fining companies such as Thames Water for sewage leaks is like “shooting a company in the foot and then expecting them to win the race”. Their argument is that high penalties make it difficult to invest in fixing the situation.
Under plans seen by the FT, energy companies would be given lower targets to reduce leaks and water and waste water outages in return for greater regulatory oversight for up to five years.
Shares in English water companies rose on Wednesday morning after the FT story was published. Shares in United Utilities, which has historically been fined hundreds of thousands of pounds at a time for outages and sewage leaks, rose 2.6% to lead the FTSE 100. Severn Trent, which was recently fined £2m for pollution, rose 1 .4%, while on the smaller FTSE 250 index Pennon Group was 2.2% higher.
Ofwat is increasingly in the crosshairs of opposition parties. The Guardian understands that Labor is considering plans to reform the regulatory system, which could include reshaping Ofwat, while the Lib Dems are calling for it to be scrapped and replaced with a stronger body.
Lib Dem environment spokesman Tim Farron said: “Any attempt to let these polluting giants off the hook would be an absolute disgrace. This plan is proof that Ofwat should be scrapped. This Conservative government has allowed this toothless regulator to flounder for far too long. It’s about time someone finally stood up to these water companies.”
MPs including Labour’s Clive Lewis and John McDonnell are pushing for the nationalization of all water companies, starting with Thames Water. This is not Labor policy, but Thames Water may have to be temporarily nationalized if it fails.
Campaigners have spoken out against Ofwat’s proposals. Ash Smith of Windrush Against Sewage Pollution said: “Privatised water companies thrive on captive bill payers and the ability to break the law with occasional token fines that achieve nothing as shareholders and executives continue to profit.
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“The industry captured the regulators long ago and is scaring politicians with mountains of debt and the results of 34 years of damage from what expert analysis has shown was nothing more than a financial fraud.”
Thames Water shareholders recently refused to provide the company with £500m of emergency funding after they branded its business plan “uninvestable”. The Guardian revealed last month that plans being drawn up in Whitehall, code-named Project Timber, would see ministers turn Britain’s biggest water company into a publicly owned entity.
Thames Water was privatized in 1989 debt-free. In the decades that followed, the water supplier took on more debt to help fund its infrastructure projects while paying big dividends to investors, notably Australian investment bank Macquarie.
Ofwa declined to comment.