Water companies in England and Wales will be forced to repay a net £67m to customers after the regulator penalised them for missing performance targets.
Thames Water, the supplier to London and the Thames Valley, will have to pay back £53m to its customers, the biggest charge under the regulator Ofwat’s system of rewards and penalties. Southern Water, which runs services from Kent to Hampshire, will repay £46m, while South West Water will repay £15m.
Water companies hold a monopoly on supply in their areas, meaning customers are unable to switch to a competitor if they are dissatisfied with the service provided. Instead, the regulator has devised the system of fines to ensure the companies, many of which are privately owned, have an incentive to invest rather than maximising dividend payments.
For instance, Thames Water was penalised for failing to stop sewers from flooding, for missing customer service targets, and for failing to generate enough renewable energy.
English water companies have handed more than £2bn a year on average to shareholders since they were privatised three decades ago, according to analysis for the Guardian last year.
Thames Water is owned by a series of investment funds, led by pension funds for Ontario retirees and UK academics as well as Abu Dhabi’s sovereign wealth fund. Macquarie Asset Management, part of an Australian investment bank, bought a majority stake in Southern Water in August. South West Water is owned by Pennon Group, a FTSE 250-listed company.
The repayments will not be delivered directly to customers but rather will affect the amount that companies can charge during the 2022-23 financial year.
Ofwat said it had decided to defer incentive bonuses that would have added £25m and £470,000 to the bills of customers of Severn Trent Water and Portsmouth Water respectively.
The biggest outperformers were Severn Trent, the north-west of England provider United Utilities, which will be allowed to charge an extra £21m, and the east of England provider Anglian Water, at £12m.
Ofwat also said it would make determinations on company performance on water consumption targets at the end of the 2020-25 period, after the coronavirus pandemic played havoc with water usage patterns.