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Water Companies’ Financial Structures ‘Damaging’ Customer Trust

Industry regulator Ofwat has introduced new measures as part of its 2019 price review intended to see customers sharing the financial gains made by suppliers that have high levels of debt. A consultation was launched on April 26th, setting out more details about the transparency required over executive pay and shareholder dividends in business plans.

 

These form part of a programme announced by chief executive of the watchdog Rachel Fletcher in a letter to all CEOs of water companies back in April, intended to help rebuild trust and confidence in the sector.

 

Ms Fletcher explained that customer trust has indeed been damaged by decisions that some companies have made with regards to financial structures, dividends and executive pay. She went on to say that Ofwat has now looked at the incentives that have been given to water companies and it’s hoped that the new measures will strengthen the incentive for companies to improve performances for their customers, while simultaneously reducing the rewards “that come from financial engineering”.

 

She added: “This is an important step in making sure water companies put customers’ interests and those of future generations, at the heart of all the decisions they take.”

 

As part of the changes, companies will now be required to set out proposals to share benefits with their customers where they have gearing that is above the notional level underpinning price controls.

 

In addition, they’ll have to explain how their dividend policies for the 2020-2025 period take account of how they deliver for customers over this price control period, while being transparent in their business plans with regards to how performance-related executive pay will reward stretching delivery for their customers.

 

Ofwat has also just reviewed the first year of the business retail water market, finding that clear benefits are being delivered for many customers thanks to greater choice and competition, allowing them to switch providers or renegotiate the deals they currently have.

 

Collectively, customers have succeeded in saving about £8 million on bills and up to 540 million litres of water, as well as saving themselves time through simplified billing processes.

 

However, the point was made that smaller business customers do seem to be less aware and less interested in the retail market, so may potentially be missing out on the benefits that it can offer.

 

A number of issues have been identified that are impeding the market from operating to its full potential, including a lack of accurate and timely market and customer data, poor wholesaler performance to deliver good customer outcomes and poor interaction between wholesalers and retailers.

 

If you’ve not considered the benefits of switching water supplier, note that you could make cost savings by enjoying better tariffs with another supplier, get a better service from elsewhere and even find a supplier that specialises in services for your specific industry or operational needs. It could also be beneficial to consolidate all your water supply across multiple sites with a single supplier.