Water firms to pay £150m after ‘falling short’ on ODIs

Water companies across England and Wales have missed key outcome delivery incentives for 2021-22, meaning they must return £150 million to billpayers.

The regulator said only Bristol, Portsmouth, Severn Trent, South Staffs, United Utilities and Wessex met their delivery targets and are set to qualify for outperformance payments, with Severn Trent earning £62.9 million and United Utilities netting £24.1 million.

Severn Trent volunteered to defer recovering the reward from customers to minimise bill fluctuations amid the cost of living crisis.

The annual performance commitments were set as part of PR19 to measure common and bespoke targets for the environment, customer service and supply quality. These include recently reported performance against leakage, customer service, pollution incidents an supply interruptions.

Thames, Southern and Northumbrian have had the largest penalties imposed at £51 million, £28.3 million and £20.3 million respectively. Northumbrian attributed the underperfomance to supply interruptions during Storm Arwen.

The financial penalties imposed by Ofwat will see customer bills reduced in the next year of the current five-year period.

“When it comes to delivering for their customers, too many water companies are falling short, and we are requiring them to return around £150 million to their customers,” said David Black, Ofwat chief executive.

“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 £80 million 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.”

Warren Buckley, customer experience director at Thames, said the company had improved but recognised there is more work to do. He said: “Our aim is to always deliver brilliant customer service. It’s one of the biggest priorities of our plan to turn around our performance and our shareholders have recently approved an additional £2 billion into the business so we can improve outcomes for customers, leakage and river health.”

He explained the company significantly reduced its total complaints after improving customer service and achieved a 39% reduction in supply interruptions in the past two years. Thames has further improvements planned for customer service as part of the company’s turnaround plan.

“We’re determined to do better, and while we’re heading in the right direction, we know there is a long way to go,” Buckley said.

A spokesperson for Southern said the company was now better positioned to deliver on targets. “As laid out in our annual report, we recognise that Southern Water has not always met expectations in recent years but are now in a position to deliver significant change for our customers and the environment,” they said.

“This includes investing £2 billion (c.£1,000 per household) between 2020-25, more than our regulatory allowance, to significantly improve our performance. We are on-track to reduce pollutions by 40% compared to 2021 with much still to be done to maintain this to the end of the year, and we are also industry leading in self-reporting.”

Northumbrian expressed surprise at its financial penalty in the draft determination. The company’s regulation and assurance director, Andrew Beaver, said: “Our levels of customer service and environmental impact are among the best in the industry. This is demonstrated by the four star rating the Environment Agency gave us earlier this year.

“Ofwat’s draft decision however, proposes a significant financial penalty. This is almost entirely driven by what happened during Storm Arwen in late 2021, when extreme weather conditions in our operating areas led to widespread power outages. Despite the large scale multi-agency response some customers experienced temporary interruptions to their water supply.

“We expected that Storm Arwen would have been deemed an extreme weather event and not included in their draft determination, however OFWAT has rejected this proposal in its draft decision.

“We are very surprised by Ofwat’s draft decision and will be responding to the consultation in due course. We will keep customers informed of the outcome.”

Following a consultation period on the draft determinations, Ofwat will make its final decisions on rewards and penalties by 15 November.