25 May 2023
Case summary
We have opened an enforcement case into the accuracy of leakage and PCC performance figures Welsh Water has reported to Ofwat as part of its annual regulatory reporting for the periods 2020-21 and 2021-22. This comes after Welsh Water notified Ofwat that it had identified issues with its leakage and PCC performance calculations for those periods as part of its Annual Performance Report assurance process.
Companies have outcome delivery incentives linked to their leakage performance as part of their price controls, receiving outperformance payments for exceeding targets and incurring underperformance payments where they miss their targets. Following Welsh Water alerting Ofwat on the issues it had identified, in November 2022 Ofwat deferred its decision on outcome delivery incentives linked to the company’s leakage performance commitment, until it was provided with accurate data for the periods concerned.
Ofwat’s investigation will consider Welsh Water’s restated performance figures, what led to the company reporting inaccurate performance, and what steps it has taken or is taking to address these failings. Welsh Water is already considering how it might remedy the matter with its customers. Ofwat will consider any remedial plans as part of its investigation, and its decision on whether Ofwat needs to take any further action on the matter.
Summary of Ofwat’s proposed decision
On 14 March 2024 we published a Provisional Penalty Notice (‘the Notice’) setting out our proposal to impose a nominal penalty of £1 on Welsh Water. This decision is in light of undertakings offered by Welsh Water including a redress package valued at £39.4m. The company will also be required to implement a range of steps to improve governance and oversight of its leakage and PCC regulatory reporting.
This Notice follows our investigation, which found that Welsh Water had breached:
- Paragraph 9.2 of Condition B; paragraph 1 of Condition M; and paragraph 6 of Condition F of its Instrument of Appointment (“Licence”) by misreporting information in connection with its leakage and PCC performance commitments in its 2020-21 and 2021-22 Annual Performance Reports and its PR19 business plan, and information about its leakage performance commitment in the last three years of the 2015-2020 price review period; and
- Paragraph P12 of Condition P of its Licence in relation to the adequacy of its management resources and systems of planning and internal control to enable it to carry out its regulated activities, particularly in relation to its regulatory reporting.
We are required to provide an opportunity to interested parties to make representations on our intention to impose a penalty. We will then make our final decision having considered any representations we receive.
Key publications
Notice of Ofwat’s proposal to impose a financial penalty on Dŵr Cymru Cyfyngedig (‘Welsh Water’) (14 March 2024)
Announcements
Welsh Water to pay £40 million following Ofwat investigation. (14 March 2024)
Relevant powers
Section 18 of the Water Industry Act 1991
Date opened
25 May 2023
Enquiries
If you have a query, please contact: [email protected]
Media enquiries should be directed to the Ofwat Press Office: 0121 644 7642 / 7821 / 7616 / [email protected]