The regulator has told water companies in England and Wales to reduce their bills by £114mn next year, after finding that they have performed poorly across most metrics. This includes leakage and sewage spills.
Ofwat the industry regulator said on Tuesday that nearly all 17 water and sewerage companies failed to meet targets in terms of pollution, leakage, and customer service. Fewer than half of companies met their targets for reducing sewage spills into rivers, lakes and coastal waters.
Thames and Southern Water, for the third consecutive year, were the worst performers on Ofwat’s annual review. They missed targets for leaks as well as sewage spills.
The regulator stated that none of the companies had reached the “leading” category in 2022-23. Seven companies were classified as “lagging”, the worst category, including Anglian Water (Dwr Cymru), Southern Water (Thames Water), Yorkshire Water (Yorkshire Water), Bristol Water and South East Water.
Ofwat stated that it is impossible to estimate at this time how much water customers could save next year due to fluctuating bills.
The deductions are more than offset by the inflation-linked increases, which suppliers can apply every year.
In April, water and sewerage bills increased by a median of 7.5% to approximately £448 per year for each customer.
David Black, Ofwat’s chief executive, called it “disappointing for those who want to improve the performance of this sector”.
“It will not be easy for the companies to gain public trust. But they must start by providing better service to customers and to the environment. “We will continue to do everything we can to make sure the sector is more efficient,” he said.
Ofwat reported that 13 out of 17 water companies spent less than what they were permitted on infrastructure improvements, despite an increase from last year.
Water companies are preparing to present their business plans on Monday to the regulator. Plans outline the amount they plan to increase bills in order to invest in infrastructure and services over the next regulatory phase between 2025 and 2030.
Customers will be responsible for any improvements, and in some cases they may see bill increases up to 50%. Ofwat faces a tough decision due to the cost of living crisis, public anger and dividends. It will take a decision before December of next year.
The findings of the regulator put pressure on water companies who are already struggling to cope with inflation, which has impacted energy, debt service, construction, and labour costs.
Colm Gibson, Berkeley Research Group’s managing director, stated that Ofwat appeared to take a “particularly tough stance” given the pressures facing all companies right now.
Investors will take note, particularly if Ofwat asks them to inject more equity.
Thames Water has, for instance, received £550mn – the first equity injection after privatisation. The company is currently struggling with £16bn in debt. It has agreed to receive an additional £750mn until 2025. This money is still to be received, and it is subject to conditions. The company indicated that it needs another £2.5bn.
Water UK, the industry’s representative, stated that companies “recognize there is still more to be done to meet the regulator’s ever-tightening target.” Water companies in England and Wales have proposed record investment levels for the remainder of this decade.
Mike Keil, Senior Director at the Consumer Council for Water said: “Customers want to know that they are getting the service they expect for what they value. They want to know that they are getting value for their money on their water bill.