Ofwat has published its annual assessment of company operational performance and a summary of the financial resilience of companies. Both the Water Company Performance report 2021-22 and the Monitoring Financial Resilience report 2021-22 have identified areas where water companies are letting down their customers, and the environment.
Water company performance report 2021-22
Northumbrian Water, Southern Water, South West Water, Thames Water, Welsh Water and Yorkshire Water have been named as the worst performing companies operationally. Ofwat required these companies to return almost £120m to customers in November 2022.
Despite some improvements across the industry, Ofwat is deeply concerned by those that are lagging behind expectations and these companies are now required to explain what has led to their poor performance and present a clear action plan to turn this around. Ofwat expects to see companies delivering on their commitments to customers.
In addition to these improvement plans for specific areas of performance failure, Ofwat will also consider whether poor performance is indicative of any wider compliance issues, which could in turn lead to potential enforcement action if issues are identified.
Across all companies there are broad trends in their performance over 2021-22:
- There is encouraging progress on leakage which is now at its lowest level since privatisation. We expect companies to continue to reduce leakage at pace if the sector is to meet its commitment to reduce leakage by 50% from 2017-8 levels by 2050.
- The number of serious pollution incidents increased. As a result of poor performance in pollution incidents generally, Ofwat confirmed in November 2022 that companies will have to return almost £17m to customers. In November 2021, we opened an investigation into all wastewater companies in England and Wales, with six enforcement cases against companies where we have the greatest concerns.
- The majority of companies have seen a drop in their customer satisfaction. Ofwat intends to introduce a condition in all companies’ licences to increase companies’ customer focus and incentivise the very best service for customers.
- The vast majority of companies missed their target to reduce the level of household water consumption (known as per capita consumption or PCC). Companies should have the strongest possible incentives to deliver reductions in PCC and those that don’t meet their performance commitment levels can expect to incur penalties.
- All companies met their mains repairs and unplanned outage performance commitment levels. This is an improvement from last year, when 10 companies failed their mains repairs performance commitment level. All companies met their unplanned outage performance commitment levels for the second year in a row.
Monitoring Financial Resilience report 2021-22
Driven by Ofwat intervention, several companies have taken steps to strengthen their financial resilience this year. More than £2billion of new equity has been injected or committed to the regulated companies since March 2021.
This includes proactive intervention from Ofwat over the past 18 months with Thames Water, Southern Water and Yorkshire Water. While these changes are positive, these three companies remain subject to targeted monitoring and engagement. We expect each company to demonstrate delivery of their commitment to improve performance and financial resilience.
In addition to a summary of the sector’s financial resilience, the report notes that most companies have again failed to clearly explain the link between their dividend decisions and payments with performance delivery for customers. In particular, both Northumbrian Water and Portsmouth Water fell short of our expectations when considered in the context of the level of dividend they paid, which was significantly higher than our base expectations, and their relative financial resilience.
As a result, we will require all companies that are not meeting our expectations to set out the actions they are taking to address our concerns. In parallel we are seeking to change the licences of all companies to strengthen financial resilience and ensure dividend payments take into account performance for customers in line with our expectations.
David Black, CEO said: “In too many areas, water and wastewater companies are falling short when it comes to looking after customers, the environment and their own financial resilience. We are clear; these companies need to address this unacceptable performance as a matter of urgency.
“For some companies poor performance has become the norm. This cannot go on. We are requiring the worst performers, including Thames Water and Southern Water, to return around £120m to customers.
“Separate from today’s reports, we are taking enforcement action on wastewater treatment works compliance, well as consulting on licence changes that will help us drive through the transformation needed across the water industry.”