Ofwat warns companies against falling behind on investment

Some water companies are falling behind their own projections for investment during the current asset management period (AMP7), Ofwat has warned.

The sector has hit back with companies explaining they are where they expect to be at this point in the cycle, with projects on track to be delivered.

Halfway through the current five-year regulatory cycle, which runs from 2020 to 2025, Ofwat has flagged many companies are at risk of backloading their investment to the end of the AMP, or not delivering the promised service improvements.

In the first two years of AMP7, 14 companies underspent their budget for improving water networks and eight underspent on wastewater, Ofwat said.

It highlighted that Northumbrian and Affinity spent less than half of their water enhancement allowances. For wastewater enhancements, Yorkshire spent just 20% of its allowance and South West 39% of its budget for the five-year period.

“We expect companies to deliver the service improvements they were funded to deliver. No ifs, no buts,” chief executive David Black said. “The lack of investment from companies we’re seeing at the moment is extremely disappointing, especially in light of the poor performance for customers and the environment. Failure to invest or delays to investments means that vital improvements are not being made or are late. I am expecting these companies to get a grip on their investment programme and make up for the shortfalls to deliver the associated improvements in service.”

The warning, which comes ahead of Ofwat publishing its Company Performance Report later this week, was met with some frustration as companies said they are where they expect to be at this point in the cycle.

Yorkshire, which the regulator suggested was behind its wastewater investment, said it would invest almost £1 billion in improving rivers in its region by 2025. “We are committed to spending all our allowance on improving the environment in Yorkshire,” a spokesperson said. “The majority of our environmental investment is to reduce phosphorus in the rivers of Yorkshire, which will achieve many of the long-term government targets in this area.

“The latest performance report covers just two years of the current five-year period, where we have devoted time to designing better environmental catchment solutions than the traditional engineered solutions that will improve the environment while providing the best value for our customers. In the coming years, these solutions will be implemented and our investment will be achieved by the end of 2025, as agreed with Ofwat.”

Similarly, a spokesperson for South West Water said: “This data does not include investment on base maintenance and operating cost, both of which are relevant in delivering our business plan and meeting our commitments. For the first two years of the period, our total spend, including base maintenance, enhancement and operating costs, was [circa] 99% of the allowance. It is a limited snapshot covering only the first two years of the investment period and a small amount of the areas we are investing in.”

Over this regulatory period, South West is delivering its largest environmental investment programme for 15 years, which includes £330 million of expenditure on its wastewater network before 2025.

This year, the company announced it will reinvest £120 million in environmental and resilience initiatives, including reducing storm overflows and its impact on rivers by 2025. This will be over and above South West’s base commitments set out at PR19.

Affinity Water, which Ofwat highlighted for having spent 47% of its allowance, said it has spent just under half its investment at the half-way point through the five year period.

“Rest assured, we will spend all of the planned investment for the remaining years of this five year cycle,” a spokesperson said. “These investments are already having a positive impact on the service we provide and the communities we serve.

“We are on track to deliver on our 20% leak reduction target. We have maintained high standards of water quality with one of the best scores in the industry. Our industry leading campaign Save Our Streams helped to save over a billion litres of water in 2021/22 alongside metering. Investment in our network has made us more resilient to drought and customers are less likely to have their water supply disrupted with one of the best performances in the industry in this area.

It also has 20 completed river restoration projects and cut the amount of water abstracted from groundwater sources by 100 million litres daily over the past 30 years. Plans are underway to restore another 36km of rivers and streams.

A Water UK said the data represents only a short snapshot of the period and added that lockdowns have in some cases delayed planned works. A spokesperson said: “Water companies are committed to playing a full part in improving our water environment – including improvements agreed as part of their five-year investment plans that last up to 2025. In fact, a number have volunteered to go further than those plans, committing to beat government targets in a number of areas.

“In addition, the data covers only about a fifth of the areas companies are investing in, leading to a partial and selective picture of their full activity.”

Looking ahead to PR24, the regulator is due to publish its methodology for companies to write business plans next week.