WATCHDOGS have slapped a £20.3million fine on Southern Water for deception and over-charging customers.

It was one of the largest fines ever imposed by the industry regulator Ofwat.

The water and sewerage company that serves hundreds of thousands of customers in Kent and Medway was found guilty of deliberately misreporting the facts before October 2005.

Ofwat denounced the utility's poor processes and systems that had led to poor service and failure to properly compensate customers.

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."

Ofwat said the fine would not be passed on to customers but borne by Southern Water’s shareholders.

It added: "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."

Southern Water blamed the problems on a new billing system, ironically designed to improve customer service.

It told Ofwat that the times it took to respond to customers contacting the call centre with a concern were better than they actually were. This left some customers without compensation to which they were entitled.

Southern Water said the problems were in the past and the company was improving its services. It had paid customers total compensation of £500,000.

Chief executive Les Dawson said: "I would like to reassure customers that those historically entitled to guaranteed standards payments have now been paid and that we are well on course to meeting a service improvement plan agreed with the regulator."

In October 2005, new Southern Water bosses uncovered inconsistencies in the reporting of service standards and notified Ofwat and the Serious Fraud Office (SFO).

Thousands of paper records were reviewed and an independent company was appointed to review nearly 13 million microfilmed records from the previous nine years. An SFO investigation was called off earlier this year.