Ofwat has published its annual Water Company Performance Report which shows disappointing results. According to the regulator, this demonstrates that record investment alone in the next five-year period will not deliver the sustained improvements to services and the environment needed to rebuild public trust.
Without a more innovative and proactive approach to solving the problems facing the sector, water companies will not fulfil the potential offered by the next price control to deliver clean rivers and seas and improvements for customers.
Companies are falling further behind on key targets for pollution and internal sewer flooding, with no company achieving ‘leading’ status for the second year running.
Ofwat CEO, David Black said::
“This year’s performance report is stark evidence that money alone will not bring the sustained improvements that customers rightly expect.
“It is clear that companies need to change and that has to start with addressing issues of culture and leadership. Too often we hear that weather, third parties or external factors are blamed for shortcomings.
“Companies must implement actions now to improve performance, be more dynamic, agile and on the front foot of issues. And not wait until the government or regulators tell them to act. As we look towards the next price control, the challenge for water companies is to match the investment with the changes in company culture and performance that are essential to deliver lasting change.
“However, we are beginning to see that some companies are beginning to change their culture and adopt a more innovative and forward-thinking approach to tackling pollution. Severn Trent is taking action to cut sewage overflows with 617 improvements at 467 sites, delivered by over 400 specialist employees with plans in place for further investment. We need to see more firms showing the same sense of urgency and action.”
Water companies were set stretching targets for 2020-25 to deliver better outcomes, for both customers and the environment. Where they fall short on these, the regulator imposes performance penalties which results in customers being charged less than they otherwise would be the following billing year. Performance penalties have totalled more than £430m since 2020.
Despite the sector committing to reduce pollution incidents by 30% in the 2020-25 period, and achieving a reduction of 15% from 2019 to 2022, the increase in pollution incidents in 2023 means there has now only been a 2% reduction to date. There was an increase in pollution incidents for nine of the 11 companies in 2023 and only one company met the performance commitment level. In 2022, almost half of companies met the performance commitment level, and four companies outperformed it by more than 10%, demonstrating that better performance is achievable.
Ofwat is determined to drive up companies environmental performance. Companies’ failure to comply with responsibilities to deal with wastewater has already led to Ofwat proposing enforcement penalties on Thames Water, Yorkshire Water and Northumbrian Water totalling £168 million and investigations into the remaining wastewater companies in England and Wales are ongoing. In the Draft Determination, Ofwat has proposed a record £88 billion investment package for the next five years which aims to cut sewage spills by 44 per cent.
On leakage, while progress has been made, companies have only achieved a reduction of 6% on an annual basis to date, against a target of 16% by 2025. The sector committed to reduce internal sewer flooding incidents by 41% over five years, but four years in it has achieved a 10% reduction. Customer satisfaction has deteriorated further, to its lowest point since Ofwat introduced the measure in 2020.
Four companies have moved up from ‘lagging behind’ to ‘average’, South East Water, South West Water (Bristol region), Thames Water and Yorkshire Water, but performance improvements are inconsistent across the sector. Progress has also been made on asset health, reducing supply interruptions and ensuring more vulnerable customers are on the Priority Services Register. Drinking water quality continues to be excellent in England and Wales, with public supplies consistently meeting the stringent standards set.
Anglian Water, Dŵr Cymru Welsh Water and Southern Water are categorised as ‘lagging behind’ and are required to continue to provide Service Commitment Plans, alongside the four companies that moved into ‘average’ to ensure improvements are sustained. Thames Water moved up a category from ‘lagging’ to ‘average’ as it met six of its performance commitments and improved on leakage and water supply interruptions. However, this does not affect Ofwat’s Turnaround Oversight Regime. Its operational and financial resilience challenges continue and the company must pursue all options to seek further equity to fund its turnaround.
All companies overspent on their combined water and sewerage allowances in 2023-24 but during the 2020-2024 period, companies generally underspent their allowed funding for delivering service enhancements. This can result in improvements for customers and the environment being delayed and Ofwat will continue to challenge companies on their delivery capabilities, especially with the next price control set to deliver a tripling of investment.
