Welsh Water ordered to return £24m over poor performance

Welsh Water has been instructed to lower customer bills by up to £24 million next year after failing to meet critical environmental targets, including those related to pollution control.

This follows the annual review by the water industry regulator, Ofwat, of the water and wastewater sector’s performance in England and Wales.

For the second consecutive year, Welsh Water, also known as Dŵr Cymru, has been categorised as ‘lagging behind.’

In 2022, the company was hit with an underperformance penalty of £18 million due to similar issues, marking a worrying downward trend for the not-for-profit utility.

Regulatory Penalties for Missed Targets

The penalty imposed on Welsh Water is part of a broader effort by Ofwat to hold underperforming water companies accountable.

Since 2020, more than £430 million in performance penalties have been levied on water companies across England and Wales.

These penalties, which lead to lower customer bills, are designed to encourage companies to meet strict environmental and service standards.

The sector had committed to reducing pollution incidents by 30% during the 2020-2025 period.

By 2022, companies had achieved a 15% reduction, but a rise in pollution incidents in 2023 has slashed the overall reduction to just 2%.

Welsh Water is one of the companies struggling to meet these goals, contributing to the industry-wide shortfall.

Rising Pollution Concerns

Nine of the 11 water companies reviewed by Ofwat saw an increase in pollution incidents last year, with only one managing to meet its performance target.

In contrast, 2022 saw nearly half of the companies reach their targets, with some exceeding them by over 10%, showing that better performance is possible with the right approach.

David Black, Ofwat’s CEO, made it clear that the regulator expects improvement, stating, “Money alone will not bring the sustained improvements that customers rightly expect. Companies need to change, starting with culture and leadership.”

Leakage and Flooding Still Major Issues

Welsh Water’s challenges go beyond pollution control. The sector has also struggled to address leakage, with companies achieving only a 6% reduction so far, against a target of 16% by 2025.

Internal sewer flooding, which was supposed to be reduced by 41% over five years, has only decreased by 10%, further highlighting the sector’s slow progress.

Customer satisfaction has hit its lowest level since Ofwat began measuring it in 2020, signalling growing frustration with water companies, including Welsh Water, which has faced repeated challenges in delivering required improvements.

Challenges Ahead for Welsh Water

While some companies, like Thames Water and Yorkshire Water, have improved their performance ratings from ‘lagging’ to ‘average,’ Welsh Water continues to struggle alongside Anglian Water and Southern Water.

All three companies remain in the ‘lagging behind’ category and are required to submit Service Commitment Plans to ensure future improvements are made.

Despite these issues, there have been some successes.

Asset health and drinking water quality remain strong across the sector, with public supplies in England and Wales consistently meeting stringent standards. However, these achievements are overshadowed by broader environmental and operational failures.

Ofwat CEO David Black said: “This year’s performance report is stark evidence that money alone will not bring the sustained improvements that customers rightly expect.

“It is clear that companies need to change, and that has to start with addressing issues of culture and leadership. Too often, weather, third parties or external factors are blamed for shortcomings.

“Companies must take action now to improve performance, be more dynamic, agile, and proactive. They cannot wait for government or regulators to tell them to act. As we look ahead to the next price control, the challenge for water companies is to match the investment with the cultural and performance changes essential to deliver lasting improvement.

“However, we are starting to see some companies change their culture and adopt a more innovative and forward-thinking approach to tackling pollution. Severn Trent is taking action to cut sewage overflows with 617 improvements at 467 sites, delivered by over 400 specialist employees, with further investment planned. We need more firms to show this same sense of urgency and action.”

In total water comnpanies across England and Wales will have to pay back £157.6m, customers’ bills will be reduced to reflect these performance penalties in 2025-26, following end of period calculation.