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Welsh Water is to issue a £10 rebate to customers after it overestimated how much water people were using, and underestimated how much it lost through leaks.

The not-for-profit company, headquartered in Nelson, discovered the error as part of an internal review and told market regulator Ofwat – which is now investigating.

Ofwat sets annual targets for companies on leakage and consumption and can be penalise or reward them, depending on performance.

In November 2022, Ofwat deferred a decision on the progress Welsh Water had made towards its leakage performance target, as it sought to understand how the company calculated its figures.

Ofwat will not provide further information on the investigation until it reaches a conclusion.

David Black, Ofwat chief executive, said: “We are committed to holding companies to account for performance and for sharing timely, accurate, and complete data with us and their customers. We recognise that Welsh Water came to us when it became aware of the issue with the accuracy of its performance data.

“Ofwat’s investigation will consider Welsh Water’s restated performance figures, the circumstances that led to the company reporting inaccurate performance, and what steps it has taken or is taking to address these failings.”

Welsh Water chief executive Peter Perry said: “We are very sorry and disappointed that this has happened. We will invest an additional £54m over the next two years to detect and reduce leaks as quickly as possible, and we have shared the findings of our investigations with our regulator.

“Although it was our robust assurance process that detected the problem, there were flaws in our governance and management oversight processes that allowed this to happen in the first place. We have made the necessary changes to our leak reporting methods, and closed the gaps in our reporting and governance processes.”

The Consumer Council for Water (CCW), the public body which represents the interests of water customers, welcomed the £10 rebate.

Emma Clancy, chief executive of the CCW, said: “It is reassuring that the company identified the issue through its own assurance processes. Customers will want the company to take the right steps to ensure this doesn’t happen again.

“Our research shows leakage from water companies affects customers’ own motivation to save water so Welsh Water will need to build trust on this issue.”

Islwyn MP Chris Evans, who in the past has been a vocal critic of the company, welcomed the investigation but described the £10 rebate as “totally inadequate”.