South West Water faces ANOTHER Ofwat probe

The Pennon Group’s South West Water is facing another investigation from Ofwat, with the industry regulator sharpening its focus on the company’s leak performance this time.

South West Water, which serves Devon, Cornwall and small parts of Dorset and Somerset, was the subject of an Ofwat inquiry into sewage dumping last year, as regulators and policy makers faced pressure to hold companies accountable for rising water pollution .

Ofwat said it would now investigate the company’s leakage and consumption per capita (PCC), with the watchdog keeping an eye on whether South West Water has previously shared “timely, accurate and complete data”.

The regulator was brief in announcing the investigation, but noted that it delayed a decision on South West Water’s leakage performance in November last year “because it was trying to understand how the company calculated the reported” data.

Pennon separately confirmed that the investigation relates to South West Water’s operational performance data for fiscal year 2021-2022, adding that the disclosures were subject to “rigorous assurance processes” including “independent checks and balances conducted by a third-party technical auditor ‘.

It said: ‘We will work openly and constructively with Ofwat to comply with the formal notification to South West Water as part of this investigation.’

South West Water serves Devon, Cornwall and small parts of Dorset and Somerset

About 20 per cent of the water flowing through pipes in England and Wales is currently lost to leakage, according to the regulator, which has identified this as an increasingly significant problem amid population growth and climate change.

Ofwat conducts research into water companies when it thinks that standards may be violated.

Enforcement action for breaches of permit conditions and requirements under the Water Industry Act 1991 may include issuing a writ to restore a business to order, and financial penalties of up to 10 percent of a business’s turnover.

Ofwat sets performance targets for companies in terms of leakage and PCC, and companies are assessed annually with the possibility of being penalized or rewarded.

David Black, CEO of Ofwat, said: ‘We are committed to holding companies accountable for performance and for sharing data with us and their customers in a timely, accurate and complete manner. We want to make sure that’s the case here.

“A thorough investigation will now be conducted and we will provide updates in due course on our findings and whether any further action is required by Ofwat.”

Penny shares fell 3.1 percent in early trading to 796.5 pence, pushing losses to about 12 percent in 2023.

It comes at a time of fierce criticism of the UK’s water industry, with companies under fire for wastewater dumping, leakage and their handling of regional droughts.

It has caused household water bills to rise this year to pay for water companies’ £10bn investment in reducing sewage pollution.

Pennon investors have been focused on how the group is handling the drought in the Southwest in particular, as regulatory oversight was one of the issues that fueled a surge in short-selling interest late last year.

Another pressing concern is the public and regulatory scrutiny of the group’s environmental credentials, particularly with regard to wastewater disposal.

Raw sewage is discharged during times of heavy rainfall, when capacity is exceeded and companies are forced to reduce pressure on treatment plants to stop overflows. Water companies are licensed to discharge wastewater under certain conditions, but concerns are growing that the limits may be illegally exceeded.