“The dial is moving in the right direction” in the industry on customer satisfaction, financial resilience and key operational areas including reducing sewer flooding and pollution, according to Ofwat senior director David Black. He cautioned, however, that the improvement “needs to be replicated across the board, so that all customers benefit from the highest levels of service”.
Black was speaking last week as Ofwat published a raft of information in multiple reports on water companies’ service, delivery and financial performance over 2017-18. Some of the highlights are listed below.
Two thirds of performance commitments (PCs) were achieved across the sector, largely flat on the previous two years but against more stretching targets (to meet their targets, companies had to improve their performance by, on average, more than 5% in comparison to 2016-17). The sector put in better performance on: pollution incidents – 13% more PCs were achieved than in 2016-17; internal sewer flooding – 40% more; and water quality contacts – 15% more. However, sector performance deteriorated on leakage – 17% fewer PCs were achieved; water supply interruptions of over three hours – 41% fewer; water quality compliance – 44% fewer; and water consumption – 10% fewer. Five companies were on-track to meet either their supply interruptions or leakage PCs prior to the Beast from the East, but failed as a result of the event.
Rewards and penalties
During 2017-18 the sector incurred £105m of underperformance payments, of which £80m related to leakage, supply interruptions and water quality PCs. However it earned £151m in outperformance payments.
In 2017-18 both Service Incentive Mechanism (SIM) scores and customer satisfaction scores increased across the industry. On SIM, the average score rose to 84.6, up from 83.7 in 2016/17. Anglian topped the chart with 88, followed very closely by Portsmouth with 87.9 and Bournemouth with 87.6. Thames Water came bottom with 78.4, with SES Water just ahead with 78.7.
Ofwat said it was “pleased to see that in the round, companies have looked further ahead in assessing their financial viability. This now needs to be matched by greater clarity in their explanations of payouts to shareholders”.
Ofwat commissioned a targeted review of company pension arrangements by Barnett Waddingham LLP, an independent UK consultancy. This reported: “The lowest funding level at the most recent valuation was 77% and the highest was 109%, with 11 companies underfunded in aggregate and six with an overall surplus. The average funding level indicated in data collated by the Pensions Regulator (albeit now slightly outdated) shows the average for the companies to be in line with or marginally better than that of the wider universe of pension schemes.” Barnett Waddingham also said: “The information supplied and discussions conducted indicate that all the water and waste water companies within scope of this report are mindful of the long-term nature of their pension obligations and are looking to manage the risks associated with these obligations appropriately.”
Ofwat will take into account companies’ performance across all of these areas when making decisions later this year about the bills customers will have to pay between 2020 and 2025.