Ofwat to penalise Thames Water over dividend payment breaches

The water regulator determined that Thames Water failed to properly align its dividend payments with company performance, violating obligations introduced in May 2023 under Licence Condition P30.

This decision follows Thames Water’s distribution of interim dividends totalling £37.5m in October 2023 and a further £158.3m in March 2024. The payments, which were made to its holding company, Thames Water Utilities Holdings Limited, included non-cash benefits.

Despite awareness of its legal and regulatory responsibilities, Thames Water did not adequately consider performance metrics linked to these payments for both instances.

Ofwat’s decision marks the first enforcement action taken under the new powers that grant the regulator the ability to hold water companies accountable for excessive dividend payments when performance does not warrant such distributions. This approach aims to fortify the financial responsibility of utility companies and protect customer interests.

In addition to the £18.2m penalty, Ofwat intends to reclaim value from Thames Water’s £131.3m in tax losses associated with the improper March 2024 dividends through adjustments in price controls. This will ensure that customers are not negatively affected by the dividend payouts.

Currently, Thames Water’s financial situation is troubling; its credit rating has fallen below investment grade, resulting in a cash lock-up. Consequently, the company cannot issue any further dividend payments without prior approval from Ofwat, which will remain in effect until its financial ratings improve.

Ofwat’s Chief Executive, David Black, indicated that the action against Thames Water serves as a stern warning to the entire sector regarding accountability in financial practices. This step reflects a broader regulatory trend focusing on enforcing more stringent financial discipline within the water industry, especially amid increasing scrutiny of corporate governance and consumer protection.