The water regulator has raised a red flag over the financial health of three of Britain’s biggest water companies as concern grows over the industry’s poor record on tackling flooding, leaks and pollution.
Ofwat called out Southern Water, Yorkshire Water and SES Water for “weak levels of financial resilience” and levels of customer service which lag behind the rest of the industry.
David Black, the regulator’s interim chief executive, said: “It is vital that water companies are financially resilient and also that they are transparent about their financial decisions. On both fronts, they have work to do.”
Ofwat’s report into the financial health and service levels of water companies in England and Wales found that Southern Water, which received a record £90m pollution fine earlier this year, has one of the lowest credit rating scores in the sector and was one of the worst performing companies in its service delivery report.
The company, which supplies water to 4.6 million customers across Sussex, Kent, Hampshire and the Isle of Wight, received £1bn pound equity injection from the controversial infrastructure investor Macquarie earlier this year, alongside a promise to a further invest £2bn over the next four years.
Macquarie is best known in the water sector as the owner of Thames Water between 2006 and 2016, a period in which it extracted hefty shareholder dividends while the company’s debt soared and its customer service deteriorated.
The regulator warned that Southern Water and Yorkshire Water were both carrying debt piles, including liabilities such as financial derivatives and its defined benefit pension scheme, which would be higher than the regulated value of the companies.
A spokesperson for Southern Water said Ofwat’s report was undertaken before the Macquarie investment which would allow the company to increase its financial resilience and increase investment to £2bn. It added that it was “on track to reduce pollution incidents by 80% by 2025 and to reduce 80% of storm overflows by 2030”.
Yorkshire Water, which supplies water to 2.3m households and 130,000 business customers, withdrew its corporate credit rating from the Moody’s rating agency earlier this year. Ofwat warned that this could result in the loss of information about a company’s financial resilience, which it considers important for regulatory purposes.
The water company rebuffed the regulator’s findings in a statement which claimed that its finances are “robust and resilient and pose no risk to customers”.
“In recent years we have taken a number of steps to make our finances more transparent and were the first company to announce the removal of offshore structures,” the statement added.
SES Water, which supplies water to about 735,000 people in parts of Surrey, Kent and south London, appeared on the regulator’s list of financial weak water companies and its list of companies which are failing to deliver good service for their customers.
A spokesperson for SES Water said it maintained “strong levels of financial resilience” and would continue to make improvements to overall performance but will also review Ofwat’s report and “respond accordingly in our discussions with them in the coming months”.