South West Water is being investigated by the industry regulator over whether it accurately reported leaks and figures showing how much water is used by its customers.
Pennon Group, which owns South West Water and Bristol Water Group, told its shareholders Ofwat had announced an investigation into the company’s operational performance during 2021 and 2022.
Ofwat sets performance targets for water companies in England and Wales on leakage and “per capita consumption”, or the amount of water used by each household. It assesses companies annually and can issue penalties or rewards, depending on how they perform.
The regulator said the penalty could be up to 10% of a company’s turnover. South West Water brought in revenues of £583m for the year to 31 March 2022.
Last November, the regulator said it was delaying a decision on whether South West Water was moving towards meeting its own targets on reducing leaks, as it tried to understand how the business had calculated its performance figures.
Ofwat said it would conduct a “thorough investigation” into South West Water, which supplies customers in Cornwall and Devon, as well as parts of Dorset and Somerset.
David Black, the chief executive of Ofwat, said: “We are committed to holding companies to account for performance and for sharing timely, accurate, and complete data with us and their customers. We want to ensure that is the case here.
“A thorough investigation will now be carried out and we will provide updates in due course on our findings and whether there is any further action Ofwat needs to take.”
Shares in Pennon Group, which is listed on the FTSE 100, slid by about 3% on Tuesday on news of the investigation.
Pennon said its operational performance data was “subject to rigorous assurance processes” which included independent checks and balances carried out by an external technical auditor.
The company said it would work “openly and constructively” with Ofwat during its investigation.
Water companies are under increasing pressure to reduce the amount of water lost through leaks, particularly at a time when the government is also aiming to lower the amount of water used by households.
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A fifth of the public water supply is lost through leaks in the network, according to the government’s “plan for water”, which was released in April, part of its attempts to achieve cleaner and more plentiful supplies in the UK.
The government said it made tackling leaks a priority for Ofwat in 2017, although water companies in England and Wales lost more than 1tn litres of water through leaky pipes in 2021-22, according to the industry’s most recent figures.
The figure is equivalent to filling 426,875 Olympic swimming pools, or enough water to fill Lake Windermere three and a half times.
South West Water has been investigated previously by the regulator along with five other water suppliers as part of an inquiry into the dumping of raw sewage, an issue that has prompted public anger over pollution in the sea and rivers.
Last week, water companies pledged to triple investment in the sewerage system in England to reduce pollution but the move was criticised for passing the £10bn bill for investment, which should have been carried out years ago, on to customers.
