Ofwat has today announced its proposed decision which finds Thames Water to be in breach of its obligations under Licence Condition P30 – the regulator has proposed an £18.2 million penalty after finding the water company broke dividend payment rules.

In October 2023, Thames Water made interim dividend payments totalling £37.5 million to its holding company, Thames Water Utilities Holdings Limited. In March 2024, the company made further dividend payments amounting to £158.3 million from which they received non-cash benefits.

This is the first time Ofwat has used new powers which allows the regulator to take enforcement action against water companies that don’t link dividend payments to performance.

Whilst greater consideration was given by the Board of Thames Water to their legal and regulatory obligations for the second payment, Ofwat has provisionally found that in making both the October 2023 and March 2024 dividend payments, it failed to comply with the new obligations which came into effect in May 2023.

Ofwat is therefore proposing to impose a penalty of £18.2 million on Thames Water. In addition, Ofwat will be able to ensure that customers do not lose out as a result of the company surrendering £131.3 million of its tax losses as part of the March 2024 dividend payment through an adjustment in the price control.

Thames Water’s credit rating is currently below investment grade; it is now in cash lock up and no further dividend payments can be paid by the company without first obtaining approval from Ofwat. This arrangement will continue until Thames Water's credit ratings improve and meet the requirements in their licence.

Ofwat’s Chief Executive David Black said:

“Ofwat’s £18 million penalty and clawing back the value of £131 million in unjustified dividend payments is a clear warning to the whole sector: We will take action against companies who take money out of these businesses, where performance does not merit it.”

The water sector regulator has launched a new consultation seeking comment on it proposal to impose the £18.2 million penalty – click here to access the consultation document. Deadline to submit comments is 5.00pm on Thursday January 16th 2025.