Ofwat says customers should expect the highest standards at all times

Ofwat said customers were overcharged �2m in total during 2004-05, and that the firm's price plan for the period 2005 to 2010 had been set too high.

Now 3.5 million customers in the Midlands will get an apology and average refund of �4 in the next bill.

Ofwat said the firm's data had been "deliberately miscalculated" or faulty.

'Below standards'

The poor regulatory data would have led to price limits being set for the water company that were higher than necessary, Ofwat said.

Ofwat calculates this would have resulted in customers paying �42m more than necessary by 2009/2010.

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Severn Trent Water is returning �7m of this in bills currently being sent to customers.

"Customers have the right to expect companies to maintain the highest governance standards, including effective processes and controls, at all times," said Philip Fletcher, director general of water services at Ofwat.

"Severn Trent Water's approach fell significantly below these standards. I view very seriously the findings and the conclusions we have drawn from our investigation."

He said he was perturbed at having to pass on certain matters to the Serious Fraud Office (SFO), which is currently investigating the reliability of leakage data provided by the water firm.

Performance monitored

Mr Fletcher said Ofwat required Severn Trent Water to implement a number of measures, including to its organisation, processes and controls, to rebuild confidence in the regulatory information the firm reports.

"We will work closely with the company's auditors and reporters to monitor its performance against these actions," he added.

Severn Trent Water said a new management team had already acted to amend future price rises to reflect "the correct position".

"We apologise unreservedly to our customers for poor internal processes and systems of control which unintentionally led to price limits for the period 2005-2010 being set too high," it said.

Sir James Perowne, chairman of the Consumer Council for Water Midlands said the "prime concern is that consumers be reimbursed for overcharging".

"It is essential that all information which companies submit to Ofwat is accurate because levels of service, funding for future projects and the level of bills are shaped by it," he added.