Ofwat is seeking views on guidance it has issued setting out its approach to enforcement aimed at providing clarity to water companies, customers and other stakeholders - the ultimate sanction is High Court special administration order where the court is satisfied that the company's breach is serious enough to make it inappropriate for the company to continue to hold its appointment or it is or is likely to be unable to pay its debts.

The guidance document explains Ofwat’s enforcement powers; its aims when it takes enforcement action; and, in broad terms, the process it will follow.

Under the Water Industry Act 1991 Ofwat has a statutory duty to impose an enforcement order where it finds that a water company is in breach of its obligations – it must also consult

In cases where it appears that urgent action is needed to stop or prevent a breach of an obligation that Ofwat enforces the regulator may make a provisional order, which can be put in place without prior consultation. A provisional order will only last for a maximum of three months, unless it is confirmed, following public consultation, as a final enforcement order.

In cases where Ofwat consider a company may have breached its licence or a statutory obligation, it may decide not to open an enforcement investigation if:

• the company satisfies the regulator that the breach is not ongoing,
• it has taken steps to ensure future compliance such that it is not likely to occur again
• it has provided redress to its customers (if appropriate) and the regulator do not consider that a financial penalty is required.

Other exceptions to Ofwat’s duty to enforce include whether the breach or likely breach is trivial in nature, or the extent to which the company caused or contributed to a breach was trivial. The nature, scale, and impact of any breach will be factors in determining whether the exemption for triviality applies.

A company is also entitled to offer undertakings to ensure compliance – the regulator will consider settlement offers on a case-by-case basis. Circumstances weighing in support of Ofwat accepting a settlement offer may include where Ofwat is satisfied that:

• the adequacy of the offer appropriately reflects the gravity of the breach;
• the company has recognised and acknowledged that the breach has occurred and identified and explained the root cause of the breach;
• the company has acted to avoid a repeat of, or has remediated or sought to redress, any relevant harm or consumer detriment;
• the breach is not part of a broader pattern of non-compliance by the company;
• the company's commitment to establishing a robust compliance culture; and
• the company has cooperated with Ofwat's investigation

The guidance document cites as an example of where Ofwat used undertakings and settlement to reach an effective resolution in an investigation in May 2024 where it issued a nominal fine of £1 following Welsh Water's offer of undertakings to address the breaches, including direct benefits to customers totalling £39.4 million.

It also refers to an investigation conducted into Southern Water in 2019 where Ofwat considered it appropriate to issue a significant fine in addition to undertakings and settlement. Ofwat decided to impose a financial penalty of £3 million on the company for its failures, which was reduced exceptionally from £37.7 million to reflect the redress it had promised to provide (particularly the customer redress of £123 million).

The water sector regulator can also take enforcement action against a regulated company that causes or contributes to another regulated company breaching its licence, statutory, or other obligations.

The guidance says that where companies are in breach of obligations Ofwat enforces, it will step in and hold companies to account through enforcement action.

The guidance states:

“We expect the enforcement action we take to act as an incentive on the company in question to change its behaviour so that it becomes compliant. It should also have a deterrent effect to prevent its poor behaviour, and non-compliance in the future. In addition, we expect our enforcement actions to have a deterrent effect across the whole sector, sending a clear signal that a breach of obligations will not be tolerated, and as to the standards we expect companies to meet.”

Options include imposition of financial penalties

Ofwat points out that it also has the discretion to issue financial penalties for a current breach or a breach that occurred in the past (within five years from the time of the breach or failure unless a notice has been served on the company to 'stop the clock').

The guidance also flags up the fact that the Deregulation Act 2015 requires Ofwat to have regard to the desirability of promoting economic growth when exercising its enforcement functions.

It states:

“We will ensure that our enforcement decisions have regard to economic growth.…. We will have regard to the growth duty when considering the remedial action we consider appropriate, taking account of the key drivers of economic growth, ensuring that our remedies are targeted and proportionate.”

Special administration is ultimate sanction

The guidance also says that the ultimate sanction in relation to breach of a principal duty or enforcement order is an application for special administration. However, this is only available with the consent of the Secretary of State or, if appropriate, the Welsh Ministers, that Ofwat may apply to the High Court for a special administration order.

The High Court can only make a special administration order in certain circumstances, including where it is satisfied: that:

• there has been or is likely to be a breach of a principal duty or an enforcement order where, in either case, it is serious enough to make it inappropriate for the company to continue to hold its appointment or licence; or
• the company is or is likely to be unable to pay its debts.

Ofwat is now inviting comments on the guidance document – deadline to submit responses is 12 noon on 24 March 2025. Consultation responses should be sent to the following address: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Click here to download the guidance document in full