Southern Water's £5.7m leak

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A second water company is set to pay millions of pounds in compensation to customers. Southern Water has discovered that it must pay an estimated £5.7m because it has persistently been slow to respond to customers' complaints and enquiries.

The company has called in a team from KPMG, the accountancy firm, and Linklaters, the City solicitors, to go through 11.5 million microfilmed letters.

Ofwat, the water industry regulator, published an interim report last week saying that, in prices set to 2010, Severn Trent Water attempted to overcharge its customers by £42m.

Price limits had been set too high because, said Ofwat, "Severn Trent Water had provided regulatory data that was either deliberately miscalculated or poorly supported."

Philip Fletcher, the director general of Ofwat, wrote to the managing directors of all water and sewerage companies last Tuesday highlighting their "obligations to provide information that is reliable, accurate and complete".

Meanwhile, accounts just filed to Companies House show that Southern Water, which provides water-supply and waste-water services in the South East, has persistently failed to compensate customers for late responses to correspondence.

Under a "guaranteed standards scheme", overseen by Ofwat, water companies must pay £25 if they fail to respond to a customer's written account query within 10 working days.

Southern Water Capital, the parent company which is owned by Royal Bank of Scotland, says in its accounts: "The company has brought to the attention of Ofwat certain inconsistencies in ... service procedures. These inconsistencies relate to the reporting and handling of response levels to customer enquiries and complaints."

"The investigation is based on the results of the investigation to date, the directors do expect the amount of compensation to be material." Southern Water estimates the amount to be £5.7m and so the group accounts for the financial year to March 2005 make a provision for that sum, reducing the profit before tax to £20.1m.

A Southern Water spokeswoman said that £100,000 had been paid so far, adding: "We are determined to get to the bottom of this issue and fix it."