Ofwat has today set out its agenda for rebuilding public trust in the water sector, as it continues to push water companies to act in the interests of their customers.

The water industry regulator has been leading a concerted drive to bring change to the water sector and to tackle some of the practices that have been a cause for concern with customers.

In a letter to the Secretary of State for Environment, Food and Rural Affairs, Ofwat’s chair, Jonson Cox, told the Minister:

“We know that the level of dividend pay-outs from highly leveraged companies aggravates customers and the public.” …”We will make sure that water companies “do not use financial engineering to inflate one-sided returns to investors, or are rewarded at the expense of their customers.”

As the next step, the letter sets out the a package of measures to improve corporate behaviours, including:

• Reforming company licences to make it even clearer that companies must put customers at the heart of everything they do;
• Looking to companies to share with customers any financial benefits they make from taking on additional gearing;
• Setting tighter standards to make sure companies are financially resilient in the long term;
• Stepping up demands on transparency around dividends and profits, including a clear expectation that companies meet their obligations to customers before making dividend payments and take fair account of employee interests such as pension deficits;
• Addressing concerns around executive pay, including an expectation that water company boards explain executive bonuses by reference to exceptional delivery for customers.

Describing the need for change in the water sector, Jonson Cox, said:

“Some water companies appear to be focused too much on financial engineering at the expense of public service. Alongside this, we’ve seen significant service failures, most recently following last month’s cold snap and quick thaw, which led to tens of thousands of customers being left without water. All of these things have damaged trust in water. Ofwat has been pushing water companies to up their game for some time; but we need to go further, faster.

“That is why today we have set out an agenda of reform to bring the water sector back in balance, including getting back to a proper sense of public service provided under private ownership. We expect the water sector to own the challenge by taking the lead in engaging with customers and the wider public about how it can redefine its role and rebuild trust. Companies who wish to be leaders in the sector will step up, voluntarily accept the need for change and put customers’ interests at the heart of everything they do, as an essential step in rebuilding trust.”

Over the next six months, the regulator is planning to take forward a number of formal consultations to get to the position where it can implement the initiatives outlined today.

Water companies will need to bring in the changes in parallel with planning to deliver further efficiency and performance improvements over the 2020 to 2025 period, as part of the PR19 price control.

The letter has also highlighted where Ofwat may need further powers from the Government to achieve its strategy.

Commenting on the publication of Ofwat’s letter to the Environment Secretary, Michael Roberts Chief Executive of Water UK, the industry body representing water and wastewater companies in the UK, said:

“All companies take very seriously their responsibility to act in the public interest and to operate to the highest standards. We support the direction of travel to tackle issues of concern, in a way that recognises that the sector is diverse and that not all the issues are relevant for all the water companies. We look forward to discussions with all involved on next steps.”