Shares in Pennon Group PLC (LSE:PNN, OTC:PEGRY) fell after the water industry regulator re-launched a probe into the accuracy of its South West Water arm's data on water leaks.
Ofwat said it was launching an enforcement investigation to verify data on leakage and per-capita-consumption, for which water companies are set regulatory performance targets.
Water companies can be penalised or rewarded based on their performance on leaks and consumption.
Last November, Ofwat deferred a decision on South West Water's leakage performance as it “sought to understand how the company calculated its reported performance", adding that it will not provide further information until it reaches a conclusion in the investigation.
It did note that investigations are carried out into water companies when there is a belief they may have breached obligations.
South West Water's last annual report for 2021/22 said leakage levels decreased 6% to 116.7 millilitres per day.
David Black, Ofwat CEO, said: “We are committed to holding companies to account for performance and for sharing timely, accurate, and complete data with us and their customers. We want to ensure that is the case here.
“A thorough investigation will now be carried out and we will provide updates in due course on our findings and whether there is any further action Ofwat needs to take.”
A breach by the company could include a financial penalty of up to 10% of the company’s turnover. Group revenue was £792.3mln last year.
Pennon said the operational performance data, which was reported in South West Water's annual performance report 2021/22, which is "subject to rigorous assurance processes which include independent checks and balances carried out by external technical auditor".
The FTSE 250-listed company said: "We will work openly and constructively with Ofwat to comply with the formal notice issued to South West Water as part of this investigation."
The shares dropped 2.2% to 803.57p