Thames Water pay back largest amount to customers over performance failures
The water provider has been told by regulator Ofwat to pay back £56.8 million, the most of any provider in England and Wales.
Last updated 8th Oct 2024
Water companies will have to pay a £157.6 million penalty after missing key targets on reducing pollution, leaks and supply interruptions while customer satisfaction continues to fall, Ofwat has said.
In an annual performance report on water firms, Ofwat said customer bills will be slashed in 2025-6 to reflect the penalties, with the total rebates calculated in December.
Not one company achieved the regulator's top category of "leading" while Anglian Water, Welsh Water and Southern Water fell into the lowest category of "lagging" while the remaining 10 were rated "average".
Ofwat judges the performance of water companies in England and Wales each year against the "stretching" targets they set in 2019 for a five-year period until 2025.
If they fail to meet these, Ofwat restricts the amount of money they can take from customers. Ofwat said the figures are provisional until it completes a review process.
Despite water companies committing to reduce pollution incidents by 30%, there has only been a 2% reduction.
And companies are falling further behind on key targets for pollution and internal sewer flooding, the regulator added.
David Black, chief executive of Ofwat, 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."
Thames Water moved up a category from "lagging" to "average" as it met some performance targets on leakage and supply interruptions.
Despite this, the heavily indebted water provider will have to pay £56.8 million, the biggest fine for the fourth straight year.
A Thames Water spokesperson said:
“We have achieved the largest reduction in financial penalties across the industry and are one of only three companies to improve their ODI performance over the year.
“While our performance penalty value is among the highest in the sector, this reflects that Thames Water has three to four times more customers than other water companies, so our penalty rates are set proportionally higher. The ODI penalty per household ranks Thames as an average performer in the industry."
They also add that Thames Water have delivered their lowest ever annual leakage volume and recorded their best performance over the past five years for water quality (CRI), sewer flooding, and clearance of blockages.
“We recognise the work that remains to keep improving and get our performance where it needs to be. That’s why we have proposed an ambitious business plan for 2025-2030 to allow us to make the vital investment required in the next regulatory period. If Ofwat approves our plan, we will be able to keep our performance on its improved trajectory and deliver more for our customers and the environment.”
The penalties are separate to an ongoing Ofwat investigation into all 11 of England and Wales's water firms, which ordered three companies to pay £168 million in fines in August, in the first results of the probe.
Water Company Criticism
It comes against a backdrop of mounting public and political fury at the privatised water sector which is under fire over sewage spills, proposed bill rises and executive bonuses.
Years of under-investment by the privately-run firms combined with ageing water infrastructure, a growing population and more extreme weather caused by climate change have seen the quality of England's rivers, lakes and oceans plummet in recent years.
Some water utilities are also creaking under high levels of debt or face criticism over dividends to shareholders and executive bonuses.
Labour has said it wants the sector to reduce spills and has even proposed sweeping new laws which could see bosses face up to two years in jail if they obstruct regulators.
Steve Reed, Secretary of State for the Environment, Food and Rural Affairs, said: "Our waterways should be a source of national pride, but years of pollution and underinvestment have left them in a perilous state.
"The public deserves better. That's why we are placing water companies under special measures through the Water Bill, which will strengthen regulation including new powers to ban the payment of bonuses for polluting water bosses and bring criminal charges against persistent law breakers.
"We will be carrying out a full review of the water sector to shape further legislation that will fundamentally transform how our entire water system works and clean up our rivers, lakes and seas for good."
On Monday, a report from the Environment Agency found that almost a fifth of water supplies are being lost through leaks before they reach customers' taps.
James Wallace, CEO of campaign group River Action, said: "This might sound like a lot of money but frankly it is a drop in the ocean for polluting water companies that have handed billions in dividends and interest payments to investors.
"Clean and abundant water and healthy ecosystems are fundamental to human life and our economy.
"Yet, water companies continue to pollute the nation's waterways without facing the full force of the law or sufficient penalties."
Mike Keil, chief executive of the Consumer Council for Water (CCW), added: "Poor performance on pollution incidents and a failure to protect thousands of households from the misery of sewer flooding will do little to reverse the unprecedented decline in people's satisfaction and trust in water companies, which is reflected in our research.
"Customers will rightly question why some companies should be trusted with more of their money for future investment, when they are struggling to deliver on their existing commitments.
"People need to see and experience changes which convince them the industry cares as much about the environment as they do."
Severn Trent, SES Water, Northumbrian Water, and United Utilities beat their targets and will be allowed to charge more next year, as part of an incentive scheme.
Gary Carter, GMB national officer, called the report "damning".
He said: "If the private sector wants to run water companies then shareholders should be investing their own money not expecting bill payers to bail them out.
"Ofwat is calling for a change in culture in the water companies, but it's a sector which is broken.
"Water companies are not going to change themselves. The Government needs to go further and faster and fundamentally reform the whole sector."