Customers of UK water companies such as United Utilities Group PLC (LSE:UU.), Severn Trent PLC (LSE:SVT) and Pennon Group PLC (LSE:PNN, OTC:PEGRY) could be entitled to millions of pounds of compensation for sewage spillage under competition laws.
Economists at law firm Fideres has notified the Competition and Markets Authority (CMA) and asked it to investigate the 11 UK water companies on both competition and consumer protection grounds.
The firm estimated that households purchasing UK wastewater services have incurred damages of roughly £163mln since 2016 “as a result of the water companies abusing their dominant position”.
The amount of compensation could be even larger, as the firm estimated that water companies have also overcharged households around £1.1bn for sewage removal services in the same period, for “sewage treatment services which they did not provide since the raw sewage was spilt rather than treated”.
As the water companies could have breached competition law, UK consumers could be entitled to launch a class action against the companies, the Fideres suggested.
Earlier this year, the Environment Agency released data showing that 10 water companies in England released raw sewage into waterways 1,000 times a day on average last year, led by FTSE 100-listed United Utilities, with fellow blue-chips Severn Trent in third and South West Water, owned by Pennon, in fourth.
The agency is also carrying out a criminal investigation at more than 2,200 sewage treatment works owned by these and other water and sewerage companies, over potential breaches of permit conditions for monitoring and wastewater treatment.
As water companies enjoy regional monopolies, where cosumers have little or no choice of their supplier, Fideres suggested in its report that the companies “elected to exploitatively abuse their dominant position, not by setting excessive prices, but providing an excessively low quality of service”.
“Specifically, they may have underinvested in the service, and particularly in relation to sewage networks.”
The reported highlighted research by the FT that showed total spending on important infrastructure, fell by 15% between 2020 and 2021, with the most extreme decline being in wastewater and sewage networks.
“Over the same period, the companies — which were privatised with no debt and handed £1.5bn — have borrowed £53bn, the equivalent of around £2,000 per household. However much of that has been used not for new investment but to pay £72bn in dividends.”