Shares in water companies United Utilities Group PLC (LSE:UU.), Severn Trent PLC and Pennon Group PLC (LSE:PNN, OTC:PEGRY) fell after regulator Ofwat said the sector needed to immediately and substantially improve its performance.
Publishing its final methodology report ahead of the latest price review (PR24), Ofwat said the firms would have to meet new environmental commitments and improve service to customers.
Although the methodology covers the period from 2025 to 2030, it comes as many companies have been found to be regularly pumping raw sewage into rivers and the sea, and Ofwat said they needed to act now to deliver improvements ahead of the review taking effect.
In a statement, Ofwat chief executive David Black said: "Companies have fallen short of the expectations of customers and communities - they need to seize the opportunity to transform their performance at PR24. Turning around performance on the environment and improving resilience will require innovation, new approaches to managing water and investment.
"The sector needs to act now - in advance of PR24. Significant improvements are needed to drive down water demand, improve customer service and reduce pollution incidents. We are looking to companies respond to urgent need for change and set out ambitious plans to improve outcomes for customers and the environment".
United Utilities shares fell 1.4%, Severn Trent lost 1.3% and South West Water owner Pennon dropped 0.7%.
Key elements of the PR24 framework include new environmental commitments for companies, including on the use of storm overflows, improving biodiversity, improving bathing water quality and reducing greenhouse gas emissions, as well as setting clear expectations on companies’ dividend and executive pay policies, with the prospect of additional measures on performance-related pay to protect customers’ interests if these expectations are not met.
Last week, Ofwat slated Pennon's South West Water in particular as it said many companies were falling behind on their investment plans, warning that it expects them to deliver on service improvements with “No ifs, no buts”.