By Yadarisa Shabong
(Reuters) - Britain's South West Water is under investigation over possible violations involving its wastewater treatment works, regulator Ofwat said on Tuesday, sending shares in parent company Pennon down 6%.
South West Water is being included in the investigation launched last year by Ofwat and the Environment Agency after several water companies admitted they might be making unpermitted sewage discharges into rivers and watercourses.
"From what we have seen so far, the scale of the issue here is shocking - companies must resolve any problems at wastewater treatment works and do so quickly," Ofwat CEO David Black said in a statement.
"As we gather and analyse more information, including data on storm overflow spills, our concerns have grown further about South West Water's operation of its wastewater assets and environmental performance."
Pennon said it would work "openly and constructively" with Ofwat to comply with the formal notice issued to South West Water.
Ofwat's enforcement powers allow it to fine companies up to 10% of their annual turnover.
The enforcement case against South West Water follows action in March against Thames Water, Anglian Water, Northumbrian Water, Wessex Water and Yorkshire Water.
Ofwat said it has now opened investigations into a majority of the wastewater companies in England and Wales.
"Where they have breached their obligations, we will not hesitate to act," Ofwat said.
Share prices of fellow London-listed water and wastewater companies Severn Trent (LON:SVT) and United Utilities lost 5% and 1.3% respectively, underperforming a FTSE 250 index that gained 0.4% by 1107 GMT.
"This is a strongly toned update that signals to us that further scrutiny and regulation is to come," Jefferies analysts wrote in a note.
Scrutiny of water companies has intensified in the past year after a government U-turn put legal controls on the amount of wastewater that companies can release.
An earlier parliamentary vote against such a move had triggered a public backlash.