The economic regulator plans to fine the company for deliberately misreporting information prior to October 2005 and because poor processes and systems meant customers received poor service. Customers also missed out on the payments they were entitled to because of these service failures.

Ofwat chief executive Regina Finn said: "Southern Water deliberately misreported its customer service performance to Ofwat and systematically manipulated information to conceal the company's true performance over an extended period of time.

"The company benefited directly from this misreporting at the last two price reviews, meaning Southern was able to increase its prices by more than it should have done. Customers received higher than necessary bills because of the company's deception.

"Southern Water's shareholders will bear the entire cost of this fine. It will not be passed on to its customers. The magnitude of this fine reflects the magnitude of the offence - deliberately misleading the regulator, failure of the Southern Water Board of Directors to pick up the deception, the resulting poor service to customers and damage to the regulatory regime, in general."

Ofwat notes that the company took prompt action once it discovered the misreporting. It reported the situation to Ofwat and the Serious Fraud Office, initiated its own investigation and co-operated fully with Ofwat's investigation.

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