Ofwat has announced new powers that will enable it to stop the payment of dividends if they would risk the company’s financial resilience, and take enforcement action against water companies that don’t link dividend payments to performance.
The change will require company boards to take account of their performance – for customers and the environment – when deciding whether to make dividend payments. It will also require companies to maintain a higher level of overall financial health.
These changes to company licences reduce the risks that a company’s poor financial health may pose to customer interests and its ability to invest to protect the environment. If the company falls short, Ofwat will be able to step in and take enforcement action.
By incentivising companies to strengthen their financial health, Ofwat will also improve the attractiveness of investing in water and wastewater companies. This, in turn, helps ensure the sector can continue to focus on the investment and performance improvements needed to protect customers and the health of our waterways.
As such, the regulator is modifying water company licences to:
- Require companies to take account of service delivery for customers and the environment, as well as investment needs and financial resilience, when deciding whether to pay dividends
- Require companies to hold a strong credit rating and to stop them paying dividends if their financial health is at risk
- Improve the transparency and consistency of company licences.
The licence changes are designed to both incentivise those companies experiencing financial health challenges to engage with Ofwat promptly, and to allow Ofwat to intervene and take actions faster, where companies fail to take such steps themselves.
David Black, Ofwat CEO, said:
“When deciding on dividend payments to investors, water companies need to take stock of their performance for customers, the environment, and the company’s overall financial health. Too often, this has not been the case. That is why we’re implementing changes that will allow us to better hold companies to account and take enforcement action when they get it wrong.
“We hope the introduction of these new powers will focus minds around company board tables on the importance of responsible decision making and openness with customers and other stakeholders. And if that isn’t the case, we will act.”
