Water companies in England and Wales have been instructed to reimburse customers over £260 million due to substandard performance.
According to Ofwat, the economic regulator, 40% of these funds have already been applied as deductions to current year bills, with the remainder set to be deducted from bills next year. However, consumers should anticipate significant bill increases continuing through 2030 to finance essential upgrades to the water infrastructure.
Earlier today, the Environment Agency (EA) released its annual environmental performance ratings for England’s water companies in 2024, assigning the sector its lowest aggregate score to date, amidst a notable increase in serious pollution incidents.
Water UK, the industry’s representative body, conceded that “the performance of some companies is not good enough,” while highlighting investments made since the previous year.
Thames Water, the UK’s largest water provider, faces the largest penalty, totaling £75.2 million, for its performance during the 2024/25 period.
The EA also assigned Thames Water the lowest possible rating of one star.
A Thames Water representative stated, “Transforming Thames is a substantial undertaking that will require considerable time. Achieving the necessary scale of change will necessitate at least a decade.”
Environment Secretary Emma Reynolds acknowledged, “We are confronting a water system failure that has resulted in deteriorated infrastructure and sewage contamination of our rivers.”
“We are implementing decisive measures to rectify the situation, including new authorities to prohibit unfair bonuses and swift financial penalties for environmental violations,” she added.
Companies failing to meet agreed-upon targets related to pollution and leak management are mandated to issue “underperformance” payments, effectively reducing customer bills relative to what they would have been.
The chart below illustrates these payments in millions of pounds, denoted by negative numbers on the left, adjusted to 2017-18 prices.
Conversely, companies exceeding targets receive “overperformance payments,” enabling them to charge customers higher rates, as demonstrated by the positive numbers on the right. This applied exclusively to United Utilities and Severn Trent Water.
Despite these underperformance payments, customers are facing notable increases in their utility bills.
In April, bills rose by an average of 26% across England and Wales, following Ofwat’s approval of water company plans for substantial infrastructure investments.
Further rate increases are anticipated until at least 2030 to support the upgrading of water supplies and the reduction of sewage discharges.
Ofwat characterized the overall performance in 2024/25 as “mixed,” recognizing improvements in specific areas such as internal sewer flooding.
However, it noted that “there remain areas where companies and the sector must do more,” including addressing pollution incidents and supply interruptions affecting some customers.
In its assessment, the Environment Agency (EA) assigned the main water and sewerage companies in England their lowest cumulative score for environmental performance since the inception of the rating system in 2011.
In his introductory remarks, the EA’s chair, Alan Lovell, stated, “Many companies communicate their commitment to environmental improvement. However, these intentions are not reflected in the data.”
The EA’s collective rating for the nine companies stood at 19 stars, a decline from 25 stars in 2023. No previous year had recorded fewer than 22 stars.
The EA clarifies that its assessment criteria have become more stringent over time, implying that the ratings “do not necessarily indicate a decline in performance since 2011,” and noted “some improvement” up to 2023.
Nevertheless, Mr. Lovell asserted, “This year’s results are unsatisfactory and should serve as an unequivocal and pressing call for change.”
The EA awarded seven companies two stars, indicating “requiring improvement,” and Thames Water received one star. Only seven one-star ratings had been issued previously.
Only Severn Trent achieved the highest rating of four stars.
This development compounds the challenges faced by Thames Water, which is grappling with financial instability. The company reported a loss of £1.65 billion for the year ending in March, while its debt burden has escalated to £16.8 billion.
“We recognize the imperative to improve our performance for the benefit of our customers, communities, and the environment. To that end, we have commenced the most extensive investment program in our history, implementing the most significant upgrade to our network in 150 years,” a Thames Water spokesperson stated.
In July, the EA reported that “serious” pollution incidents attributed to water companies in England had increased by 60% in 2024 compared to 2023.
The agency attributed the environmental performance of the past year to three factors: wet and stormy weather, long-term underinvestment in infrastructure, and enhanced monitoring and inspection protocols “bringing more failings to light.”
In response to today’s findings, James Wallace, chief executive of the advocacy group River Action UK, commented, “Water companies in England and Wales continue to underperform, particularly with respect to serious pollution incidents, exposing the deficiencies of the privatized water model.”
“We urgently require a comprehensive overhaul of this flawed system to guarantee fair service for bill payers and to adequately protect our rivers from pollution.”
Beginning in 2027, the EA will replace its current star ratings with a new assessment system, employing a scale from one to five, ranging from “failing” to “excellent.”
The government asserts that this revised system will provide a more precise depiction of performance, stipulating that companies cannot attain the highest rating unless they “achieve the highest standards across the board.”
Earlier this year, the government announced that Ofwat would be replaced by a single regulatory body.
This decision followed a comprehensive review of the “failing” water sector in England and Wales, which advocated for more robust regulation to hold water companies accountable. The review cautioned that there would be no immediate solutions to improve the condition of our rivers or lower consumer bills.
In response to the EA’s report released today, Mike Keil, chief executive of the Consumer Council for Water, stated, “Customers are currently paying more than ever through water bills, and they rightfully expect companies to fulfill their commitments to reduce pollution and contribute to the restoration of rivers, lakes, and wildlife habitats.”
“Should the industry fail to deliver on these promises, the erosion of public trust, which is already at a record low, may be irreparable,” he added.
Southern Water reports that environmental tests indicate “no significant impact on bathing water quality.”
The Environment Agency deems the firm’s performance to be “significantly below target.”
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