Ofwat has today published its proposals to fine Severn Trent Water 3% of its turnover - a total of £35.8 million - for deliberately providing false information to the regulator and providing a poor service to its customers. Severn Trent Water's shareholders will bear the entire cost of the proposed penalty which cannot be passed on to its customers.

Ofwat Chief Executive Regina Finn said

"Severn Trent Water's behaviour was unacceptable. The size of the proposed fine reflects how seriously Ofwat takes the deliberate misreporting of information

"This sends a clear message to the company and to the rest of the water sector - Ofwat will protect consumers and companies must comply with their legal obligations or pay the price. Any further attempts to deliberately mislead Ofwat could lead to even bigger fines in the future."

In its statement announcing the fine, Ofwat said that by deliberately misrepresenting its performance, Severn Trent Water prevented Ofwat from identifying failures in the company's customer service and taking action to improve that service. This deception combined with poor internal processes and controls within the company meant that its customers received a service that was far below what the company had reported it was delivering, and in many cases was below the statutory minimum standards.

Ofwat said that the company's actions also resulted in customers paying higher bills than they should have done, with some customers also missing out on payments they were entitled to because performance fell below prescribed standards.

Severn Trent Water has already made a start on rectifying its failings returning some of the money through a reduction in this year's (2008-09) bills, with the remainder being returned to customers in next year's bills. The company is also implementing action plans to address the weaknesses identified in its internal processes and controls. Ofwat is working closely with the company's auditors and reporters to monitor Severn Trent Water's performance.

Severn Trent Water is one of the largest water companies in England and Wales, representing nearly 15% of total industry turnover. The record £35.8 million fine is the largest fine ever imposed by Ofwat – the amount set after the regulator took into account the fact that Severn Trent Water took action when it discovered the misreporting, reported the situation to Ofwat, initiated an investigation and co-operated with Ofwat's investigation. when setting the level of the proposed penalty.

A previous investigation into Severn Trent Water by Ofwat following allegations made by a then employee about false reporting of information to the regulator resulted in Ofwat alerting the Serious Fraud Office (SFO) to concerns about false leakage data being supplied to the regulator. The SFO has decided to bring three criminal charges against Severn Trent Water for providing false information to Ofwat between 2000 and 2002.

In a separate statement issued by Severn Trent Plc, Tony Wray, Chief Executive said:

"When my new management team and I uncovered misreporting and poor service in our customer relations department we promptly alerted Ofwat and took steps to implement proper controls and an ethical working culture with the highest standards to ensure there can be no repetition of this unacceptable behaviour

"Without waiting for Ofwat's conclusions we are lowering bills for customers by £10.6 million, around £2.40 per household, to ensure we have not profited in any way. We fully acknowledge and accept that the Company is responsible for its failures.  Now that we have received the notices from Ofwat setting out the proposed level of penalties and the reasons for them, we will carefully consider them and will respond appropriately.

"There is no doubt that the previous regime and culture in place during the era from 2000 to 2004 was overly bureaucratic and lacked sufficient controls and procedures.  Those who were responsible for the customer relations mistakes are no longer with Severn Trent and we apologise to our customers for their failings.

"Severn Trent's new Board and management team has taken, and will continue to take, all actions appropriate to ensure the maintenance of both high ethical and professional standards and resilient and effective controls throughout our organisation.

"A comprehensive root and branch reorganisation of Severn Trent Water has been completed since I became Managing Director in March 2005 and, now, as Chief Executive of Severn Trent, I and my new management team are determined to continue to drive improvements in all our activities for the benefit of all our customers and other stakeholders."