Ofwat: Thames Water has ‘significant issues to address’ as industry pays £1.4bn to shareholders
Water regulator Ofwat has named the four worst performing water companies, with troubled Thames Water among those being urged to address big holes in their finances.
Ofwat, which oversees the water sector in England and Wales, said Thames Water, Southern Water, SES Water and South East Water need to deliver a turnaround in their financial performance.
Its latest yearly report revealed that four other firms are causing concern over their long-term finances.
It comes as some £1.4 billion was paid out in dividends to shareholders in the latest year across all the firms monitored.
United Utilities dished out £452 million to shareholders and Severn Trent paid out £426 million during the year.
“There are some companies that did not fully meet our expectation in explaining dividend decisions and payments,” Ofwat said.
Ofwat gained new powers to stop companies paying dividends if they would risk their financial stability, or to step in if the payments are not being linked to performance.
The powers are set to apply for the next financial year.
Thames Water, which is Britain’s biggest water supplier with 15 million customers across London and the South East, has “significant issues to address”, the watchdog said.
Concerns grew earlier this year over the firm’s £14 billion debt pile, but it managed to secure an emergency funding package from shareholders which staved off the immediate threat of nationalisation.
South East Water, which supplies about 2.2 million homes in England, was moved into its “action required” category, with the firm being hit by inflation and a weaker operational performance.
Southern Water was also red-flagged by the watchdog as needing to take action.
The supplier was identified as the most complained-about company in a report by the Consumer Council for Water revealed earlier this month.
Complaints received by the supplier were almost three times higher than the overall average for water and sewerage companies.
Affinity Water, Northumbrian Water, Portsmouth Water and Yorkshire Water were all categorised as “elevated concern”, where they will be subject to greater regulatory scrutiny.
Meanwhile, the water sector has attracted £4.6 billion in extra cash from shareholders since 2020 to help boost firms’ financial resilience, Ofwat revealed.
David Black, Ofwat’s chief executive, said: “We expect companies to maintain a level of financial headroom so they can manage periods of volatility and meet their obligations to customers and the environment.
“We’ve been calling for the water sector to be strengthened by further investment – that is why we welcome the £4.6 billion of additional equity.
“Where we have seen cause for concern, we have also seen some companies responding to the challenge and we expect them to continue to work on improving their financial resilience.”
Rebecca Pow, the water minister for the Government’s Department for Environment, Food and Rural Affairs (Defra), said it was encouraging to see more investment into the sector.
“However, we are clear that water companies must not profit from environmental damage,” she said.
“That is why we gave Ofwat new powers to impose tougher rules on water company dividends and we welcome the tighter restrictions on bonuses too.”
Earlier this year, the watchdog said it wanted to make companies more accountable for their actions after saying too many were giving out bonuses to executives that do not reflect the company’s performance for customers and the environment.
And last month, it announced that water companies who were under-performing against their targets will return around £114 million to customers by taking it off their bills for next year.
Press Association – Anna Wise