One of the key targets for companies is to reduce pollution incidents, which were meant to fall by 30% between 2020 and 2025.
Companies had so far achieved a 15% reduction over the last few years. But that improvement has been almost wiped out by the significantly higher number of incidents last year.
The industry has said that although this performance was unacceptable, the record levels were due to heavy rain and increased data collection.
But 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 we hear that weather, third parties or external factors are blamed for shortcomings.”
Public dissatisfaction with the industry has risen in recent years particularly in relation to pollution.
CEO of campaign group River Action James Wallace said: “This might sound like a lot of money but frankly it is a drop in the ocean for polluting water companies.”
This is the fourth year in a row that companies have been asked to return money to customers for underperformance. Mr Wallace questioned whether Ofwat had significant influence on the industry.
“The new Government is taking some positive steps, including a review of the water sector and the introduction of a Water Bill. However, we believe the bill, as currently drafted, falls short. Where is the duty on Ofwat to prioritise the environment and penalise pollution?” he said.
For the last three years Ofwat has been investigating the nine wastewater companies for failing to adequately invest in their infrastructure, which it suspects could have led to excessive sewage spills. In August, the outcome for the first tranche of companies was announced – the regulator is seeking fines of £47m for Yorkshire Water, £17m for Northumbrian Water and £104m for Thames Water.
David Henderson, chief executive of Water UK, told the ‘s Today Programme: “Performance is clearly not where it should be, and companies are fully committed to boosting that performance.
“It is important to note though that it is not all bad, across every single measure all but two, water companies have delivered improvements since the start of the decade – leakage is at is lowest level in history.”
Ofwat estimates that currently about a fifth of all water put into the network in England and Wales is lost via leaks.
This is an important area for the industry because many areas of England already regularly experience water shortages and climate change is expected to exacerbate this issue. The Environment Agency estimates, external that the country will need an additional 5 billion litres of water a day by 2050 to support the economy and environment.
Some companies were praised in the report for their efforts to tackle this and other issues, including Severn Trent, which Ofwat said had managed to cut sewage spills by delivering improvements at 467 sites.
Severn Trent, SES Water, Northumbrian Water, and United Utilities exceeded their targets and therefore will be able to charge customers more next year, as part of a scheme to incentivise the industry.
Following the release of the report, the Department for Environment, Food and Rural Affairs said the environment secretary would be writing to the Chairs and CEOs of every water company laying out the performance improvements that he expects them to make in the coming year.
