Ofwat to scrutinise financial resilience as three firms fall short

Welsh Water, Severn Trent and United Utilities are financially resilient, while Southern, SES and Yorkshire gave Ofwat concern in its annual assessment of water companies’ financial resilience, which for the first time was based on a dashboard of key financial metrics.

Overall, the regulator said financial resilience across the sector remained good for the year to the end of March 2021, and that companies continued to attract investment. Net totex of £9.5bn had been funded, and Regulatory Capital Value across the sector grown by approximately 1.9%.

However, Ofwat called the relationship between poor operational performance and weak levels of financial resilience “a key issue” which it would continue to scrutinise. It also had issue with dividend payments which, while lower than in previous years, companies had not explained well. It said: “Despite Ofwat's clear expectations on this, and the public interest in the issue, only three companies have adequately set out how their dividend decisions are linked to delivery for customers and the environment.”

Ofwat said it planned to publish proposals for discussion on how to protect customers by enhancing the financial resilience of water companies, to follow up on issued identified in the report.