REG - Water Services Auth - Water Company Performance Report - £157.6m penalty

Severn TrentAnnouncement

08/10/2024 08:15

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RNS Number : 2625H  Water Services Regulation Authority  08 October 2024

Immediate release

 

Ofwat calls on water sector to improve its performance after companies fall
short on targets

 

·    Poor performance costs water sector £157.6m this year as companies
fall further behind on some key Ofwat targets

·    Customers' bills will be reduced to reflect these performance
penalties in 2025-26, following end of period calculation

·    Ofwat CEO challenges companies to match record proposed investment
with changes in company culture and leadership essential for lasting
change

·    Despite water companies committing to reduce pollution incidents by
30 per cent, there has only been a 2 per cent reduction

·    Fewer companies categorised as 'lagging behind' but performance
inconsistent across the sector

 

Ofwat has today published its annual Water Company Performance Report which
shows disappointing results. This demonstrates that record investment alone in
the next five-year period will not deliver the sustained improvements to
services and the environment needed to rebuild public trust.

 

Without a more innovative and proactive approach to solving the problems
facing the sector, water companies will not fulfil the potential offered by
the next price control to deliver clean rivers and seas and improvements for
customers.

 

Companies are falling further behind on key targets for pollution and internal
sewer flooding, with no company achieving 'leading' status for the second year
running.

 

Ofwat CEO, David Black said::

 

"This year's performance report is stark evidence that money alone will not
bring the sustained improvements that customers rightly expect.

 

"It is clear that companies need to change and that has to start with
addressing issues of culture and leadership. Too often we hear that weather,
third parties or external factors are blamed for shortcomings.

 

"Companies must implement actions now to improve performance, be more dynamic,
agile and on the front foot of issues. And not wait until the government or
regulators tell them to act. As we look towards the next price control, the
challenge for water companies is to match the investment with the changes in
company culture and performance that are essential to deliver lasting
change.

 

"However, we are beginning to see that some companies are beginning to change
their culture and adopt a more innovative and forward-thinking approach to
tackling pollution. Severn Trent is taking action to cut sewage overflows with
617 improvements at 467 sites, delivered by over 400 specialist employees with
plans in place for further investment. We need to see more firms showing the
same sense of urgency and action."

 

Water companies were set stretching targets for 2020-25 to deliver better
outcomes, for both customers and the environment. Where they fall short on
these, the regulator imposes performance penalties which results in customers
being charged less than they otherwise would be the following billing year.
Performance penalties have totalled more than £430m since 2020.

 

Despite the sector committing to reduce pollution incidents by 30% in the
2020-25 period, and achieving a reduction of 15% from 2019 to 2022, the
increase in pollution incidents in 2023 means there has now only been a 2%
reduction to date. There was an increase in pollution incidents for nine of
the 11 companies in 2023 and only one company met the performance commitment
level. In 2022, almost half of companies met the performance commitment level,
and four companies outperformed it by more than 10%, demonstrating that better
performance is achievable.

 

Ofwat is determined to drive up companies environmental performance.
Companies' failure to comply with responsibilities to deal with wastewater has
already led to Ofwat proposing enforcement penalties on Thames Water,
Yorkshire Water and Northumbrian Water totalling £168 million and
investigations into the remaining wastewater companies in England and Wales
are ongoing. In the Draft Determination, Ofwat has proposed a record £88
billion investment package for the next five years which aims to cut sewage
spills by 44 per cent.

 

On leakage, while progress has been made, companies have only achieved a
reduction of 6% on an annual basis to date, against a target of 16% by 2025.
The sector committed to reduce internal sewer flooding incidents by 41% over
five years, but four years in it has achieved a 10% reduction. Customer
satisfaction has deteriorated further, to its lowest point since Ofwat
introduced the measure in 2020.

 

Four companies have moved up from 'lagging behind' to 'average', South East
Water, South West Water (Bristol region), Thames Water and Yorkshire Water,
but performance improvements are inconsistent across the sector. Progress has
also been made on asset health, reducing supply interruptions and ensuring
more vulnerable customers are on the Priority Services Register. Drinking
water quality continues to be excellent in England and Wales, with public
supplies consistently meeting the stringent standards set.

 

Anglian Water, Dŵr Cymru Welsh Water and Southern Water are categorised as
'lagging behind' and are required to continue to provide Service Commitment
Plans, alongside the four companies that moved into 'average' to ensure
improvements are sustained. Thames Water moved up a category from 'lagging' to
'average' as it met six of its performance commitments and improved on leakage
and water supply interruptions. However, this does not affect Ofwat's
Turnaround Oversight Regime. Its operational and financial resilience
challenges continue and the company must pursue all options to seek further
equity to fund its turnaround.

 

All companies overspent on their combined water and sewerage allowances in
2023-24 but during the 2020-2024 period, companies generally underspent their
allowed funding for delivering service enhancements. This can result in
improvements for customers and the environment being delayed and Ofwat will
continue to challenge companies on their delivery capabilities, especially
with the next price control set to deliver a tripling of investment.

 

ENDS

 

Notes to editors:

·      The Water Company Performance Report 2023-24 is available here
(https://www.ofwat.gov.uk/regulated-companies/company-obligations/outcomes/water-company-performance-report-2023-24/)
.

·      Table A sets out (in £millions) the total net underperformance
and outperformance payments for each company across the first four years of
the current five-year regulatory cycle.

·      £157.6m is the net sector underperformance penalty companies
reported to Ofwat for 2023-24. This means that customers will be charged less
than they otherwise would have been in 2025-26. The payments do not include
end of period payments that are accruing annually, deferred payments from
previous years, abatements / deferrals or bespoke adjustments and so are not
the final payments that are applied in customers' bills. The exact amount that
will be returned to customers will be finalised in December 2024.

 

 Table A

                         2020-21    2021-22    2022-23    2023-24
 Thames Water            -47.0      -51.9      -100.7     -56.8
 Anglian Water           11.5       -8.4       -22.4      -38.1
 Yorkshire Water         -2.1       -15.4      -19.8      -36.0
 Southern Water          -45.6      -39.8      -42.9      -31.9
 Welsh Water             -6.8       -12.4      -18.3      -24.1
 South West Water        -15.4      -13.4      -9.2       -17.4
 South East Water        -4.6       -2.9       -5.2       -8.0
 Wessex Water            2.4        4.6        0.7        -5.3
 Affinity Water          -4.3       -0.9       -8.1       -5.2
 Bristol Water           -1.6       0.7        -2.6       -1.9
 Portsmouth Water        0.8        0.4        0.0        -1.1
 South Staffs Water      0.8        2.3        0.3        -0.7
 Hafren Dyfrdwy          -0.5       -0.4       -0.4       -0.2
 SES Water               -1.1       -0.2       -1.1       0.2
 Northumbrian Water      6.3        -16.3      -0.1       7.8
 Severn Trent Water      61.5       59.2       27.0       27.9
 United Utilities        19.9       24.7       25.3       33.2
 Total                   -25.7      -70.0      -177.6     -157.6

 

 

 

 

 

·      Ofwat's assessment of companies' performance for 2023-24

 

·    Pollution. The performance commitment level (PCL) that companies need
to meet for the number of pollution incidents gets more stretching throughout
the 2020-25 period. In order to meet the end of period performance commitment
level most companies need to reduce the number of pollution incidents per
10,000 km of sewer to 19.50 (Hafren Dyfrdwy (HDD) has a different PCL due to
the small size of its sewerage system).(1) In 2023 the PCL was 22.40 (117 for
HDD) and only one company met it. In 2022 the PCL was 23.00 (117 for HDD) and
five companies met it. In 2021 the PCL was 23.74 (137 for HDD) and six
companies met it. In 2020 the PCL was 24.51 (138 for HDD) and six companies
met it.

·    Asset  health. Most companies have performed well in their asset
health measures in 2023-24. All companies have reported better performance for
mains bursts in 2023-24 with the sector delivering a 25% improvement compared
to 2022-23. The sector's performance on sewer collapses has improved by 23%
since the beginning of the 2020-25 period. Every company has met the unplanned
outage performance commitment level in 2023-24. Six companies met the
treatment works compliance deadband in 2023, one more than in 2022.

·    Leakage. In 2023-24 most companies reported a reduction in annual
leakage. The sector committed to reducing annual leakage by 16% in the 2020-25
period. Although there has been an overall sector reduction of 6% to date (8%
in England), much more is needed in the final year of the period, if the
sector is to meet the 16% reduction.

 

(1) At PR19 we considered it inappropriate to set Hafren Dyfrdwy the common
performance commitment level because this would require the company to have
very low numbers of category 3 incidents in absolute terms due to the small
size of its sewerage system.

 

 

 

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