The water regulator for England and Wales has raised a red flag over the financial health of companies responsible for supplying more than 20 million customers in the south-east of England amid growing public anger over the industry’s record on services and pollution.
Ofwat’s latest report on the financial resilience of the sector again named Thames Water, Southern Water and SES (Sutton and East Surrey) Water as companies that need to take action to shore up their long-term finances.
The regulator also raised concerns over the financial health of South East Water, which has 2.2 million customers, adding it to its “requires action” category for companies that have the lowest scores for financial resilience in the industry.
The decision to include South East Water alongside Thames, Southern and SES means the company will be subjected to extra scrutiny from the regulator. This year it emerged that South East spent more on dividends and servicing its debt pile over the past two years than investing in infrastructure.
It spent £232m on distributing dividends and paying interest on its debts in the two years to March 2022, according to a research by the University of Greenwich, compared with investments of £179.8m spent on upgrading infrastructure – from replacing pipes to improving water supplies.
The company, which serves customers in Kent, Sussex, Berkshire and Surrey, also came under fire over the summer when 6,000 households were left without running water for up to a week. It was forced to implement a hosepipe ban and blamed increased working from home for growing demand.
Ofwat said it moved South East Water into its “requires action” category to reflect the “increased financial pressures, which sit alongside a weakening in operational performance”.
David Black,the regulator’s chief executive, said: “We expect companies to maintain a level of financial headroom so they can manage periods of volatility and meet their obligations to customers and the environment.”
He added: “Where we have seen cause for concern, we have also seen some companies responding to the challenge and we expect them to continue to work on improving their financial resilience.
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“This is particularly notable in the cases of Yorkshire Water and Portsmouth Water, which last year we had categorised as requiring action. They have taken clear actions and this year, have been moved out of our bottom category. We expect to see more companies following this trend and will continue to closely monitor their progress.”
