In a move announced today, Ofwat has unveiled new powers that will allow it to prevent the payment of dividends that could compromise a water company’s financial stability.
These changes will require company boards to take into account their performance, both for customers and the environment when deciding whether to make dividend payments.
Companies will also need to maintain a higher level of overall financial health.
Ofwat’s changes to company licences aim to reduce the risks that a water company’s poor financial health could pose to customer interests and the environment.
Should a company fall short, Ofwat will be able to step in and take enforcement action.
Furthermore, the regulator hopes that by incentivising companies to strengthen their financial health, investing in water and wastewater companies will become more attractive.
This will help ensure that the sector continues to focus on the investment and performance improvements necessary to safeguard customers and the health of waterways.
Specifically, Ofwat is modifying water company licences to require companies to consider service delivery for customers and the environment, investment needs, and financial resilience when deciding whether to pay dividends.
Companies will also need to maintain a strong credit rating and will be prohibited from paying dividends if their financial health is at risk.
Additionally, the transparency and consistency of company licences will be improved.
These licence changes will encourage companies experiencing financial challenges to engage with Ofwat promptly and enable the regulator to intervene and take action more quickly when companies fail to do so themselves.
Ofwat Chief Executive Officer, David Black, stated that the changes aim to make water companies more accountable and to promote responsible decision-making and transparency with customers and other stakeholders.