Water companies make progress in cutting leaks, but some must do better on pollution, flooding and outages, Ofwat states

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Water companies have made progress towards meeting challenging targets set by the regulator to tackle issues such as leakage, but some companies’ environmental records are still not good enough, according to the latest annual assessment of water companies’ performance by Ofwat.

The regulator has also issued an assessment on companies’ financial strength and raised concerns about the resilience of some companies.

Today’s report rates individual company performance when it comes to delivering for customers over the past year, with Severn Trent, Anglian Water, and Portsmouth Water the top performers across a number of key operational areas.

However, Southern Water, Thames Water, Bristol Water, South East Water and SES Water are ‘lagging behind’ and ‘not delivering for their customers.’

Commenting on the report’s findings David Black, Interim Chief Executive at Ofwat, stated: “Over the past year we have seen some areas of progress in water company performance, most noticeably on tackling leakage and maintaining a reliable supply of services through the pandemic.

“But, on environmental measures some companies are still falling short and they are not doing enough to confront the grim consequences of internal sewer flooding.

“Companies lagging behind need to catch up with the best performers and they need to do so quickly.”

The assessment also reports that wastewater services are ‘not good enough.’ Only three wastewater companies achieve their target for reducing internal sewer flooding and, although just over half of companies achieved their target to cut pollution incidents, the performance of many has stagnated or deteriorated in recent years.

Other highlights of the report on operational and customer performance include:

  • The sector continues to reduce leakage after years of stagnation – 13 companies achieve their 2020-21 targets and some are making considerable progress towards their 2024-25 targets.
  • Companies have provided continuity of services despite the challenges posed by COVID-19.
  • Even in the first year of the price control, some companies demonstrate that 2024-25 targets are achievable – at least one company is exceeding 2024-25 targets in four different areas.
  • The water sector has further to go to meet the very best standard of service, as not one water company achieved the level of performance of the top 25% of companies in the country (as measured by the UK Customer Service Index).

Alongside the assessment of operational and customer performance, Ofwat has also issued an annual assessment on water companies’ financial resilience.

According to Ofwat, overall financial resilience across the sector remains good and companies are still attracting investment.

However, there are concerns about the financial health of some companies. In addition, a key issue for Ofwat is the relationship between poor operational performance and weak levels of financial resilience, which the regulator will continue to scrutinise.

Companies with stronger levels of financial resilience include Dŵr Cymru, Severn Trent and United Utilities. The water regulator considers that Southern Water, SES Water and Yorkshire Water all have weak levels of financial resilience.

The report also finds that while dividends paid in 2020-21 are lower than in previous years, most companies are falling short when it comes to explaining their approach to making these payments.

Despite Ofwat’s clear expectations on this, and the public interest in the issue, only three companies have adequately set out how their dividend decisions are linked to delivery for customers and the environment.

Following up on the issues identified in this report, Ofwat will shortly publish proposals for discussion on how to protect customers by enhancing the financial resilience of water companies.

Commenting on companies’ financial resilience, Mr Black stated: “As providers of an essential public service, it is vital that water companies are financially resilient and also that they are transparent about their financial decisions. On both fronts, they have work to do.”

As part of its commitment to opening up its data, for the first time Ofwat is publishing the report using PowerBI so that others can explore and analyse the data.

‘Service and delivery report 2020-21’ is available on the Ofwat website.