Water sector regulator Ofwat has today announced that most water companies will be hit by financial penalties because of missed targets - overall, almost £150 million in total will be taken off customers' bills in the next financial year at 11 companies.

Not all water companies have significantly missed their targets on areas such as water supply interruptions, pollution incidents and internal sewer flooding - better performers such as Severn Trent Water have exceeded their targets in areas like biodiversity and are able to recover more money from customers. Severn Trent Water has asked Ofwat to defer £69.804m of their outperformance payments to reduce the impact on customer bills in 2023-24. No other company has asked the regulator to defer any payments.

However, Ofwat says that poorer performing companies such as Thames Water and Southern Water face a financial hit because of missed targets on water treatment works compliance, pollution incidents and internal sewer flooding across 2021/22 and will have to reduce customer bills accordingly. The decisions will impact customer bills in 2023-24.

The yearly performance commitment targets are a combination of shared targets across the sector and bespoke individual targets on a wide range of issues which were set in 2019 at the last price review. The targets are in place up until 2025, when the next price review, PR24, will come into place. The automatic payments and financial penalties announced today are based on whether companies have hit their targets and are known as outcome delivery incentives.

David Black, Ofwat CEO, 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. The poorest performers, Southern Water and Thames Water, will have to return almost £80m to their customers. All water companies need to earn back the trust of customers and the public and we will continue to challenge the sector to improve."

CCW - "scale of penalties reflects extent to which too many water companies have failed to deliver"

Commenting on the proposed penalties, Mike Keil, Senior Director of Policy, Research and Campaigns at the Consumer Council for Water (CCW), said:

“The scale of these penalties reflects the extent to which too many water companies have failed to deliver on promises made to their customers and it’s right households are reimbursed.”

“This will help to ensure bills do not rise as much as anticipated next April for some customers but it won’t be enough to cushion the blow for the one in ten households that already say their water bill is unaffordable. We urgently need a new water affordability scheme to end the current postcode lottery of financial assistance for customers in hardship.”

Ofwat’s draft decisions on the penalties are now out for consultation – deadline to submit comments to the consultation closes on 21 October 2022.

Click here to access the consultation documents online.