Water companies to cut millions of pounds from customers’ bills after failing to meet performance targets

Water companies who have underperformed on their targets will have to cut customers' bills next financial year to the tune of £150 million, according to regulator Ofwat, while companies who have performed well will be allowed to increase customer costs.

In an announcement on Monday, Ofwat said 11 water companies had missed their outcome delivery incentives (ODIs) on areas such as water supply interruptions, pollution incidents and internal sewer flooding, and would face penalties. In the published drafts, which are still out for consultation until 21 October this year, Thames Water faces the biggest payout, having to return £51 million to their customers, with Southern Water having to pay out the second highest amount at £28.3 million.

The other payouts, in descending order, are as follows: Northumbrian Water (£20.3 million), Yorkshire Water  (£15.2 million), South West Water (£13.3 million), Anglian Water (£8.5 million), Dŵr Cymru (£8 million), South East Water (£3.2 million), Affinity Water (£0.8 million),  Hafren Dyfrdwy (£0.4 million), SES Water (£0.3 million).

One of the reasons it was determined that Thames Water should return £51 million, given by Ofwat in their draft decision document for the company, was that it was underperforming for its quality of performance by both the Customer Measure of Experience (C-MeX), which relates to household customers, and the Developer Services Measure of Experience (D-MeX), which relates to developers and other third parties. This saw a payment of £16 million and £1 million docked off respectively. Southern Water also saw underperformance in this area, with £4 million and £1 million knocked off respectively.

Several companies exceeded their targets, and were given the option to increase their bills. For example Severn Trent Water exceeded its targets and may increase bills by £62.9 million.

The other companies who were given permission to increase their bills were:  ​​United Utilities (£24.1 million), Wessex Water (£4.4 million), South Staffs Water (£3 million), Bristol Water (£0.6 million), Portsmouth Water (£0.8 million).

All water companies are also allowed to increase their bills by inflation, using the CPIH (Consumer Prices Index including owner occupiers’ housing costs).

Ofwat chief executive David Black said: “When it comes to delivering for their customers, too many water companies are falling short, and we are requiring them to return around £150m to their customers.

“We expect companies to improve their performance every year; where they fail to do so, we will hold them to account. All water companies need to earn back the trust of customers and the public and we will continue to challenge the sector to improve.”

The service level commitments for water companies were made in 2019, when the latest Ofwat price review took place. These commitments have an outcome delivery incentive (ODI) where either financial or reputational consequences will be given to companies who are underperforming. Those who are outperforming other companies are rewarded. The incentives are paid during the 2020-25 price control-period, rather than at the next price review, to encourage year by year improvement.