UK’s Thames Water Seeks Deal to Escape £104 Million Sewage Fine

Cash-strapped Thames Water is seeking to strike a deal with its regulator to avoid a fine of £104 million ($133 million) for polluting rivers.

Industry regulator Ofwat said the utility released raw sewage from wastewater treatment works for years without permission. It also fined Yorkshire Water £47 million and Northumbrian Water £17 million for similar failures at treatment plants.

The Thames fine — which represents 9% of the sales income of the company’s sewage business — is a major blow to the utility, which is running out of money after shareholders halted new equity injections and its parent company defaulted on debt. Ofwat has suggested the company should be eventually broken up.

UK Water Companies Lambasted by Environment Agency for Sewage Releases

Thames, the UK’s biggest water and sewage provider, said it was hoping to avoid the fine by agreeing a plan with Ofwat to fix spills at its sewage treatment plants. The company has already earmarked just over £1 billion to fix the 157 non-compliant facilities by 2030. But it doesn’t have the backing of its shareholders to deliver it.

Until now, most of the public concern around sewage in England’s waterways centered on storm overflows across the wider sewer network. But Ofwat and the Environment Agency have also been focusing on spills at treatment plants. The investigations found companies are breaching their environmental permits by releasing raw, untreated sewage into waterways.

“Any decent company knows what its regulatory obligations are and it’s their job to finance that. Those fines now have to be paid by the shareholders,” said Lynn Park, Ofwat’s senior director for casework, enforcement and customers, in an interview.

“We are encouraged that Ofwat recognizes that in order to resolve the issues identified any redress needs to be deliverable, affordable and financeable,” Thames said in an emailed statement. Ofwat “may decide not to issue an enforcement order, or decide to impose a reduced or no financial penalty at the conclusion of the consultation period” if the company is showing a commitment to resolving its issues.

Thames Water only has enough cash to last through May 2025. Its parent company has defaulted on about £1.4 billion ($1.8 billion) of debt, while shareholders have declared its next big business plan “uninvestible” and the regulator called it “inadequate.”

Creditors to the utility are currently in negotiations with the company ahead of a potential debt restructuring. More pressure on its finances makes the process all the more urgent for the company and potentially strengthens the position of bondholders.

Work Needed

Ofwat said more needs to be done. It found that Thames had known about some of the problems since 2017, and had failed to fix them. It also said the company’s cost estimates have been rising and existing projects have been delayed. Some plants were supposed to be fixed by the end of this year.

“They would have to show that they have looked at all of their assets, their storm overflows, and they’ve identified anywhere there’s non-compliance and then they have a plan to remediate that non-compliance as quickly and efficiently as possible,” said Park.

Thames is already trying to avoid further potential fines from Ofwat for breaching its license last month after it was downgraded to junk. It’s also facing fines for failing to produce a satisfactory business plan, and for paying dividends to shareholders last year.

The latest fine also raises the risk that Thames will face a criminal prosecution by the Environment Agency, which is carrying out a similar investigation into illegal spills at treatment works. The agency has already fined Anglian Water £50,000 as part of its investigation.

Companies won’t be able to recover the money for any proposed penalties from customers and Ofwat will ensure that customers are not charged twice where additional maintenance is required, the regulator said.

The utilities can appeal Ofwat’s decision before Sept. 10, after which the watchdog will make its final decision. Park said her team was planning to conclude its investigations on three more companies for similar breaches later this year.

Photograph: Thames Water company logo displayed on protective barriers. Photo credit: Chris Ratcliffe/Bloomberg