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It may not be possible to take information provided by Thames Water “at face value”, according to the water regulator, which found the company had made “basic data errors” in its financial reporting and failed to give sufficient explanations of its recent performance failures.

Ofwat’s annual company monitoring framework, released on Thursday, relegated the under-fire company to its lowest assessment category after concluding that it “did not instill sufficient confidence about its ability to deliver, monitor and report performance”.

The company’s reporting failures included adding cash to its borrowings rather than deducting it when calculating net debt, Ofwat said. Its attempt to correct the net debt disclosures then contained further mistakes, as did its calculations of its interest cover, return on regulatory capital value, and dividend yield – a key metric for the privatised water companies.

Earlier this week the company suspended its dividend as it attempts to clean up its image, after coming under fire for paying out large sums while piling up debt, paying no UK corporation tax and polluting waterways.

Ofwat also criticised Thames Water’s response to its earlier operational failures, suggesting that it should have given “a fuller, more informative explanation of the performance issues” after incurring the maximum possible penalty for leakage in the 2016-17 reporting year.

It added that Thames Water should publish its annual report and financial statements at the same time as its performance report to “allow proper scrutiny of how the company is delivering on its performance commitments to customers against their financial rewards to Thames Water’s shareholders, executives and staff”.

A spokesperson for Thames Water said: “In view of the extensive efforts we are making to be open and transparent about hte performance of our business, we are disappointed by Ofwat’s decision to classify Thames Water as “prescribed”. We will be working hard to rebuild trust and achieve self-assured status as quickly as possible”.

Thames Water has taken the brunt of criticism amid a wider pushback against contentious practices in the privatised water sector. But Ofwat said on Thursday that the general picture was one of improvement in assurance practices across the sector as a whole.

Yorkshire Water became the first utility ever to exceed the regulator’s expectations with regards to corporate governance and transparency, while most of the 17 companies managed to meet expectations overall.

Thames Water was one of four companies in the lowest category, alongside Bristol Water, Dee Valley Water and Southern Water. Ofwat said there was also “a reduction in the trust and confidence stakeholders could place” in FTSE 100 group Severn Trent, which performed worse after scoring one of the highest results last year.

Thames Water and the other groups in Ofwat’s “prescribed” category will have to publish new plans on how to improve how they prepare and present information before the publication of their annual performance reports early next year.

Aileen Armstrong, Ofwat senior director for finance and governance, said:

As customers we want to be able to trust what we get from our water company – be that the water out of the tap or what they tell us. Unfortunately, on the second of those, our checks suggest we might not be able to take everything at face value.

These businesses provide essential public services and they need to assure customers they are doing the right things in the right way. If they are to gain and keep the trust of customers, they need to have high quality checks on their information and present it fairly, clearly and completely.

Photo: EPA

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