Water companies’ financial performance 2017/18 – our analysis

Our report examines the financial performance of water companies in England and Wales during 2017/18 to understand whether this could have implications for customers through:

• Opportunities for sharing outperformance of regulatory assumptions (particularly those financial windfalls which have not been as a result of direct management action)
• Ofwat’s 2019 price control review
• Financial risks

The analysis has been compiled in conjunction with Economic Consulting Associates Limited (ECA), who produced the report for us last year. It forms part of our wider work in addressing the concerns many customers have about the fairness and value for money provided by the industry. We remain of the view that water companies should share any financial outperformance with their customers at the earliest opportunity – regardless of whether the gains stem from direct management action or are simply a result of favourable economic conditions. In doing so, companies can help improve customers’ perceptions of the industry.

The analysis will help us challenge companies to demonstrate what they are doing for their customers as a result of outperformance, in particular the financial gains they have made owing to Ofwat’s cost of debt assumption. Based on companies’ financial performance from 2015 to 2018, we estimate companies’ gains on financing are about £500 million. There is currently no regulatory mechanism in place to share this outperformance with customers.