When we become aware that a water company is, or is likely to, be in breach of any obligations Ofwat is responsible for enforcing, we have a duty to take enforcement action to secure its compliance unless specific exceptions apply. We may also choose to impose a financial penalty on a company that is, or has been, in breach of an obligation.
As part of any enforcement investigation, we begin by assessing exactly which obligations could have been breached, and what evidence would demonstrate that.
As part of an investigation, we gather evidence about the potential breach to establish its cause and impacts. This can include company records, financial and performance data. We may hold discussions with those involved, including representatives from the water company.
If our evidence gathering confirms that the company is, or is likely to be, in breach of an obligation, we will issue an enforcement order to the company, requiring it to take steps to ensure its compliance, unless specific exceptions apply.
What are the possible outcomes from an investigation?
There are several possible outcomes from an enforcement investigation. We can:
- Impose an enforcement order that sets out actions the company must take to ensure its compliance
- Accept ‘enforceable undertakings from the company, where they commit to take forward particular actions to ensure their compliance. This form of regulatory settlement can include the company providing redress for customers in light of its failings.
- Impose a financial penalty on the company of up to 10% of its relevant annual turnover
What are ‘enforceable regulatory undertakings’?
Enforceable undertakings – sometimes referred to as regulatory settlements – are often a quicker, and more effective, solution for customers, ensuring the company’s compliance and often providing financial redress for past failures. In many cases, we can secure extra measures that we wouldn’t otherwise be able to through a fine or enforcement order. In deciding whether or not to accept a company’s proposed enforceable undertakings, we also consider what deterrence effect our decision might have for the company and the wider sector, to ensure the same mistakes don’t happen again.
Another key feature of enforceable undertakings is that money can be returned to customers or suitable alternatives, in order to resolve harm and provide redress. By contrast, we are required by legislation to return any money gathered from imposing financial penalties to HM Treasury.
How do we decide on the level penalty?
When deciding whether to impose a financial penalty and, if so, the level of that penalty, we consider a range of factors, such as:
- The seriousness, and the duration, of the breach
- The degree to which customers, other companies in the sector, the environment, or the regulatory regime have been affected by the failures
- Whether the company has repeatedly committed the same failures
- The degree to which the company has cooperated with our investigation, including whether it came forward to tell us about the failings in the first place
- The degree to which the company may have covered up the failings, or been open about sharing information
- Any steps the company has taken to address the failing, and provide redress to customers
When we impose financial penalties, customers should not bear the costs and we are clear that companies cannot surcharge their customers to recover the funds.