Water companies owe billpayers £236 million for underperformance

A dozen water companies have been ordered to return £236 million to customers in underperformance penalties issued by the regulator.

In contrast, five companies earned outperformance payments totalling £122 million for beating a series of targets.

Overall, Ofwat described performance against 12 common outcome delivery incentives (ODIs) as “very disappointing news for all who want to see the water sector do better”, in its annual performance review for 2022-23.

Of the 17 companies in England and Wales, 10 were classified as delivering average performance and seven as lagging behind. No company was assessed as leading this year.

Thames Water, whose performance has been under much scrutiny this year, will return more than £100 million to billpayers, while Severn Trent led the pack with outperformance payments worth £88 million. (See full breakdown of performance-related payments below.)

“The targets we set for companies were designed to be stretching – to drive improvements for customers and the environment. However, our latest report shows they are falling short,” David Black, Ofwat chief executive, said.

“It is very disappointing news for all who want to see the sector do better. It is not going to be easy for companies to regain public trust, but they have to start with better service for customers and the environment. We will continue to use all our powers to ensure the sector delivers better value.”

Northumbrian and South West rose from lagging to average, year on year; while Severn Trent, South Staffs and Bristol each slipped from the leading category.

Failing to meet the targets results in underperformance penalties, which companies must return to customers through bills. Those that do deliver results for billpayers can keep outperformance payments to reinvest.

Trade body Water UK said there was much work to be done to meet the “ever tightening targets”. A spokesperson said: “Today figures show that, in many areas, there have been significant improvements since the start of the decade. There were fewer incidents of serious pollution and less leakage from our ageing water infrastructure.

“However, companies recognise there is still much more to do to meet the regulator’s ever-tightening targets. Ensuring the security of our water supply in the future while protecting the environment will take significant investment. That’s why water companies in England and Wales are proposing record levels of investment over the rest of this decade, with detailed plans set to be published next week.”

Progress against customer satisfaction, internal sewer flooding and leakage were highlighted as needing acceleration now to meet targets for the current five-year period to 2025.

Leakage targets were achieved by eight firms, while the majority reported more water was lost to leaks this year than last. For Bristol, Portsmouth, South East, Southern, Welsh and Wessex the rise in leaks will impact their three-year trend to improvements.

Ofwat warned the deterioration of leakage rates will make it more challenging to hit the PR19 target.

Over the first three years of the AMP, a sector wide reduction of leakage target is set at 7.2% against a five year target of 16%.

Last year, 12 companies hit their leak targets. Setbacks to progress will make the longer-term ambition of cutting leakage rates by 50% by 2050 ever more challenging to meet. At the outset of this price review period, the regulator set stretching targets as leakage was prioritised in the government’s strategic policy statement after improvements had flatlined.

Despite work done to lower pollution incidents, companies are not on-track to meet the 30% reduction in incidents that was committed to.

Over the year, the Environment Agency reported a total drop of 29% in serious pollution incidents across the sector.

However, just five companies met their targets for lowering pollution incidents, with Severn Trent, UU and Northumbrian outperforming their goals of 23 incidents per 10,000km of sewer.

The six other wastewater companies did not achieve this ODI, which has come under tighter scrutiny in recent years. Pollution incidents rose at Welsh (up 7%), Thames (up 22%) and Wessex (up 53%) through the year.

Most of the sector met its performance level for customer satisfaction but none was ranked as a leader. Northumbrian, Portsmouth and Wessex held the top place in satisfaction for the third consecutive year. While South Staffs, Southern and Yorkshire all saw large declines in their scores.

Ofwat urged all firms to take steps to improve immediately to rebuild satisfaction by learning from other sectors to resolve issues quickly and accurately. A customer focused licence condition is being developed by the regulator to bolster the commitment to all billpayers.

No company met its target to lower per capita consumption (PCC) with all 17 failing to help consumers use less water. Focus on water efficiency has come into sharper focus as the ravages of climate change force the sector to plan for a far drier future. At PR24 Ofwat is launching a fund dedicated to innovation for demand management.

Just two companies – South West and UU – completed the pace of mains repair they had agreed to, while 15 failed to achieve their goal. The rate of asset maintenance has been widely criticised within the sector as inadequate and leading to infrastructure problems including leaks, pollution incidents and supply issues.

CCW interim chief executive, Mike Keil, said: “Customers are tired of not getting the service they deserve for the things they care about. It’s right and fair that people get their money back when they don’t receive the services they were promised by some water companies. People want assurance that their water bill is good value for money.

“It’s good to see a few companies bucking the trend but others need to follow suit. With trust in water companies lower than it’s been for over a decade, it’s vital that companies not only improve their services but also support those customers who are struggling to afford their water bills.”

As the sector prepares to submit business plans to Ofwat for 2025-30 next week (2 October) the in-period determination, a step-up in performance will be expected by the regulator.

Full breakdown of performance-related payments: