Ofwat slams water cos over dividend payments, poor performance

The UK’s water regulator has slammed some of the country’s major providers over the size of dividend payments relative to their financial and operational performance.

Ofwat on Thursday named the six worst firms as it said failings were now virtually embedded in “too many areas” amid public outrage over the pumping of sewage into the sea, rivers and streams and large dividend payments to shareholders, often foreign investors.

A report in the Guardian newspaper last week revealed that the nine main water and sewerage companies had paid out £65.9bn in dividends in the last three decades. They have also taken on debts of £54bn.

Northumbrian Water, Southern Water, South West Water, Thames Water, Welsh Water and Yorkshire Water were all criticised, with Ofwat saying it was “deeply concerned by those that are lagging behind expectations”.

Those firms will now have to explain their poor performance and present a clear action plan to turn this around, Ofwat said.

Most companies had “again failed to clearly explain the link between their dividend decisions and payments with performance delivery for customers”, it added.

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

The report said there had been encouraging progress on leakage, which was now at its lowest level since privatisation.

However, the number of serious pollution incidents increased, with Ofwat revealing earlier this week that water firms are failing to invest as much as they promised to fix their networks, including improving sewage treatment and reducing spills into the environment.

Between 2020 and 2022, 14 companies underspent their budget on improving their water network and eight companies underspent their budget for improving their wastewater network.

Affinity Water and Northumbrian Water spent just 47% and 48% of their water enhancement allowance respectively, and Yorkshire Water and South West Water spent just 20% and 39% of their wastewater enhancement allowance respectively.

The main areas of underspending across both categories included drought resilience, improvements to sewage treatment works, improvements to storm tank capacity and reducing spill frequency.

Ofwat chief executive David Black 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.”

Reporting by Frank Prenesti for Sharecast.com