Most water companies will be hit by financial penalties because of missed targets, the regulator Ofwat announced today.
Overall, for those 11 companies, almost £150m is planned to be taken off customers’ bills in the next financial year because of missed targets on areas such as water supply interruptions, pollution incidents and internal sewer flooding.
Not all water companies have significantly missed their targets. Better performers such as Severn Trent Water have exceeded their targets in areas like biodiversity and are able to recover more money from customers, whereas poorer performing companies such as Thames Water and Southern Water face a financial hit because of missed targets on water treatment works compliance, pollution incidents and internal sewer flooding across 2021/22 and will have to reduce customer bills accordingly. These decisions will impact customer bills in 2023-24.
These yearly targets, called performance commitments, are a combination of shared targets across the sector and bespoke individual targets on a wide range of issues. They were set in 2019 at the last price review. These are in place up until 2025, when the next price review, PR24, will come into place. The automatic payments and financial penalties announced today are based on whether companies have hit their targets and are known as outcome delivery incentives.
David Black, Ofwat CEO, said:
“When it comes to delivering for their customers, too many water companies are falling short, and we are requiring them to return around £150m to their customers.
“We expect companies to improve their performance every year; where they fail to do so, we will hold them to account. The poorest performers, Southern Water and Thames Water, will have to return almost £80m to their customers. All water companies need to earn back the trust of customers and the public and we will continue to challenge the sector to improve.”
|Draft decision on payments (£m)|
|Severn Trent Water||62.9|
|South East Water||-3.2|
|South Staffs Water||3.0|
|South West Water||-13.3|
We analyse and compare water company performance in depth through publications such as our Service Delivery Report and Financial Monitoring Report, both of which are due to be published before the end of 2022.
These draft decisions are now out for consultation and can be viewed on the Ofwat website. The consultation closes on 21 October 2022.
Notes to editors
- We welcome any responses to this consultation. Please email them to [email protected]. The closing date for this consultation is 21 October 2022.
- All the documents for the in-period draft determinations can be found on our website, including the sector overview document.
- Our 2019 price control determinations set the price and service packages that companies have to deliver through to 2025. The outcome delivery incentives (ODIs) are the financial or reputational consequences for companies of outperformance or underperformance against their performance commitments. The majority of performance commitments are reviewed annually so the financial consequences happen close in time to company performance and customer experience. The payments will affect the amount of revenue companies can recover from customers through 2023-24 bills.
- Last month, Ofwat published the leaderboard for customer satisfaction and experience for water and wastewater companies (C-MeX) in 2021-22, alongside the leaderboard showing the experience for developer services customers (D-MeX).
- Ofwat published provisional figures on leakage in July, showing progress industry wide and calling for more to be done.
- Research from Ofwat and CCW, published in May, found that people who have their homes flooded with sewage are frequently being let down by wastewater companies. Press notice – Sewer flooding misery for customers: call for urgent action from wastewater companies
- Bills will also be impacted by inflation. Water companies are allowed to increase bills by inflation, using CPIH (the Consumer Prices Index including owner occupiers’ housing costs). We have called on companies to provide more support for customers and think differently about how they charge customers, and recently published a consultation calling for trials to help with the cost of living.