UK water firms must cut customer bills by $206 mln for environmental failings

Companies unlikely to meet 2020-25 targets

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Thames Water to lose 57 mln pounds

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Ofwat CEO blames company culture

LONDON, Oct 8 (Reuters) - Britain's regulator ordered water companies to return a total of 157.6 million pounds ($206 million) to customers after missed environmental targets, the latest penalties slapped on an industry at the centre of a scandal over polluting rivers.

Britain's new government came to power in July promising to clean up the industry after sewage releases into waterways sparked anger against the privatised companies, which are accused of prioritising profit over infrastructure investment.

Regulator Ofwat said on Tuesday that the industry was falling far behind a target to cut the number of sewage spills by 30% over the 2020-25 period, with incidents only down 2%.

Water bills in 2025-26 would be reduced to reflect the missed targets, with Ofwat saying the money would come from shareholder returns, not investment. The country's biggest supplier, Thames Water, will lose 57 million pounds for missing the targets, the heaviest penalty.

Ofwat said the exact amount to be returned to customers will be finalised in December.

It is a new financial blow for struggling Thames, which is at the centre of the crisis in the country's water industry. It warned in September it could run out of money in three months unless creditors approved further borrowing.

The water companies say wet weather has resulted in a higher level of sewage releases. They have asked the regulator to allow bills to rise an average 33% over the next five years so they can lift investment to improve their performance, but Ofwat wants to cap bill rises at 21%.

Announcing the penalties, Ofwat CEO David Black said company culture and leadership were to blame for the missed targets.

Under the performance failures, Anglian Water is set to lose 38 million pounds and Yorkshire Water 36 million pounds, while a minority of companies including United Utilities and Severn Trent beat targets and will receive payments instead.

"We need to see all companies sharpen the focus on performance and do away with the culture of blaming others and focusing on what they can do," Black told BBC Radio, adding that the firms should look at innovation and new technology.

Industry body Water UK, which represents the companies, conceded performance was not what it should be but said some improvements had been made on water leakage.

"We know there is much more to do and companies are fully committed to boosting performance," a spokesperson said.

The companies are already facing Ofwat fines for sewage spills over the five years to 2022. Under a package announced in August, Thames Water, Yorkshire Water and Northumbrian Water face penalties of 104 million pounds, 47 million pounds and 17 million pounds respectively. ($1 = 0.7641 pounds) (Reporting by Sarah Young; additional reporting by Sachin Ravikumar, Editing by Kate Holton, Ed Osmond and David Evans)