Thames Water will shell out £120 million to compensate customers over poor management of leaks.
It comes after an investigation by regulator Ofwat found that Thames Water breached two of its legal responsibilities, including that the board and management “did not pay enough attention” to solving leakage issues.
The company also “underestimated the significance of its underperformance” when assuring Ofwat that it was meeting its obligations, including on quality of service.
As a result, Thames Water has incurred a £55 million automatic penalty for missing the commitment it made to customers to cut leaks.
It has agreed to pay a further £65 million back to customers after the investigation, bringing the total package of payments and penalties to £120 million.
That total will be returned through a rebate of approximately £15 to each customer over the next two years.
Ofwat chief executive Rachel Fletcher said: “Thames Water failed its customers in tackling leakage and the measures we’ve announced today illustrate the scale of the company’s shortcomings and how seriously we take them.
“Thames has assured us that they now have a grip on the leakage situation, but this should serve as a catalyst for the company to improve how it delivers on its wider commitments to customers.
“Customers don’t want to see their water company letting them down like this, but we hope the rebate they will now receive goes some way towards compensating them for their water company’s failure to live up to its commitments to cut leakage.”
As part of the settlement, Thames Water has also committed to bringing its leakage performance back in line with what it had promised to deliver for 2019-20, Ofwat said.
The company will also publish a monthly report detailing its performance in tackling leaks and appoint an independent monitor to certify that information.
That is on top of cutting leaks by a further 15% by 2025 and doing more to engage with customers on leakage issues, including at board level.
Thames Water has pledged to provide Ofwat with more detailed evidence showing that it is meeting its legal obligations in relation to leaks and improving its control and management of its core business.
Thames Water chief executive Steve Robertson said the focus was now in restoring customer trust in the company.
“We met our leakage targets for a decade but our recent performance has not been good enough. We let our customers down and for that we’re sorry.
“We have taken more control of how we manage the network and are investing significantly more in people and resources to tackle leakage, get back on track and then go beyond.”
Ms Fletcher said: “High leakage creates unnecessary strain on the environment, excess costs for customers and increased risk of water shortages.
“A well-run water company will have a good understanding of the condition of its pipes and will be able to reduce leakage over time.
“Ofwat has set all water companies a target of bringing down leakage by at least another 15% up to 2025 and expects further reductions beyond this date.”