Ofwat has today published its annual assessment of company operational performance and a summary of the financial resilience of companies - Northumbrian Water, Southern Water, South West Water, Thames Water, Welsh Water and Yorkshire Water have been named as the worst performing companies operationally.

Both the Water Company Performance report 2021-22 and the Monitoring Financial Resilience report 2021-22 have identified areas where water companies are letting down their customers, and the environment. Ofwat required the six worst performing companies to return almost £120 million to customers in November 2022.

"Clear that even leading companies have areas where we need to see real improvements”

Ofwat has grouped companies into three categories relative to each other (leading, average and lagging behind) based on how they have performed against the performance commitment levels and expenditure allowance for 2021-22. The report says:

“As these are relative, and not absolute judgements, we are clear that even the leading companies have areas where we need to see real improvements.”

Despite some improvements across the industry, Ofwat said it is "deeply concerned" by the six companies that are lagging behind expectations. The companies are now required to explain what has led to their poor performance and present a clear action plan to turn this around. Ofwat expects to see companies delivering on their commitments to customers.

The regulator will also require targeted improvement plans from companies where there are specific areas of poor performance.

There are three companies in the leading category again this year and six in the lagging behind category. Performance across all companies shows a mixed picture:

• Leading category – Severn Trent Water remains in this category for the second year in a row. South Staffs Water has improved performance and moved up from the average category. Bristol Water has also improved performance and moved up from the lagging category.
• Average category – South East Water and SES Water have both improved performance to move into this category from the lagging category last year. There has been a disappointing fall in the performance level of Anglian Water and Portsmouth Water, who were both in the leading category last year. Wessex Water met the majority of its performance commitments. It is not included in the leading category as it is subject to a live enforcement case. Affinity Water, Hafren Dyfrdwy and United Utilities all remain in the average category from last year.
• Lagging behind – this is the second year that both Southern Water and Thames Water are in the bottom category. Yorkshire Water, Northumbrian Water, South West Water and Dŵr Cymru have also fallen into this category.

In 2021-22 the sector incurred much larger total net underperformance payments than in the previous year (£60 million compared to £19 million in 2020-21).

In addition to the improvement plans for specific areas of performance failure, Ofwat said will also consider whether poor performance is indicative of any wider compliance issues, which could in turn lead to potential enforcement action if issues are identified.

The report shows that across all companies there are broad trends in their performance over 2021-22:

• There is encouraging progress on leakage which is now at its lowest level since privatisation. Ofwat expects companies to continue to reduce leakage at pace if the sector is to meet its commitment to reduce leakage by 50% from 2017-8 levels by 2050.
• The number of serious pollution incidents increased. As a result of poor performance in pollution incidents generally, Ofwat confirmed in November 2022 that companies will have to return almost £17 million to customers. In November 2021, Ofwat opened an investigation into all wastewater companies in England and Wales, with six enforcement cases against companies where there are the greatest concerns.
• The majority of companies have seen a drop in their customer satisfaction. Ofwat intends to introduce a condition in all companies’ licences to increase companies’ customer focus and incentivise the very best service for customers.
• The vast majority of companies missed their target to reduce the level of household water consumption (known as per capita consumption or PCC). Companies should have the strongest possible incentives to deliver reductions in PCC and those that don’t meet their performance commitment levels can expect to incur penalties.
• All companies met their mains repairs and unplanned outage performance commitment levels. This is an improvement from last year, when 10 companies failed their mains repairs performance commitment level. All companies met their unplanned outage performance commitment levels for the second year in a row.

Financial resilience most companies have again failed to "clearly explain link between dividend decisions and payments with performance delivery for customers"

Ofwat says that driven by its intervention, several companies have taken steps to strengthen their financial resilience this year. More than £2 billion of new equity has been injected or committed to the regulated companies since March 2021.

This includes proactive intervention from Ofwat over the past 18 months with Thames Water, Southern Water and Yorkshire Water. Ofwat said that while the changes are positive, the three companies remain subject to targeted monitoring and engagement. The regulator expects each company to demonstrate delivery of their commitment to improve performance and financial resilience.

In addition to a summary of the sector’s financial resilience, the report notes that most companies have again failed to "clearly explain the link between their dividend decisions and payments with performance delivery for customers."

In particular, both Northumbrian Water and Portsmouth Water fell short of Ofwat’s expectations when considered in the context of the level of dividend they paid, which was “significantly higher than base expectations”, and their relative financial resilience.

As a result, Ofwat will require all companies that are not meeting expectations to set out the actions they are taking to address its concerns. In parallel the regulator is also seeking to change the licences of all companies to strengthen financial resilience and ensure dividend payments take into account performance for customers in line with expectations.

“Water and wastewater companies are falling short in too many areas ...this cannot go on"

David Black, CEO said:

“In too many areas, water and wastewater companies are falling short when it comes to looking after customers, the environment and their own financial resilience. We are clear; these companies need to address this unacceptable performance as a matter of urgency.

“For some companies poor performance has become the norm. This cannot go on. We are requiring the worst performers, including Thames Water and Southern Water, to return around £120m to customers.

“Separate from today’s reports, we are taking enforcement action on wastewater treatment works compliance, well as consulting on licence changes that will help us drive through the transformation needed across the water industry.”

CCW - "cost of living crisis means households have enough to worry about without water companies adding to their concerns"

Commenting in response to Ofwat’s water company performance report for 2021-22, Emma Clancy, Chief Executive of the Consumer Council for Water (CCW), the independent voice for water consumers in England and Wales, said:

“The cost of living crisis means households have enough to worry about without water companies adding to their concerns through poor customer service or the devastation of seeing their home flooded with sewage. Water is an essential service that should be reliable, safe and affordable for everyone but some companies are falling short of meeting their customers’ expectations.”

“Many people are irritated by leakage so the industry needs to stretch itself further with far more focus on tackling visible leaks quickly, while keeping their customers regularly informed of what they are doing and the impact it’s having.”

Click here to download Ofwat's Water Company Performance Report 2021-22

Click here to download Ofwat’s Monitoring Financial Resilience Report 2021-22