Ofwat has announced new powers to block water companies’ dividend payments based on ‘financial resilience’ on Monday, aimed at boosting investment.
Under the new rules, the regulator said it would block payments if they put a company at risk, adding it would take enforcement action if needs be, prompting firms to boost “attractiveness,” which in turn, it said, would protect British waterways.
“By incentivising companies to strengthen their financial health, Ofwat will […] improve the attractiveness of investing in water and wastewater companies,” it said in a statement.
“This, in turn, helps ensure the sector can continue to focus on the investment and performance improvements needed to protect customers and the health of our waterways.”
Severn Trent PLC (LSE:SVT), United Utilities Group PLC (LSE:UU.) and Pennon Group PLC (LSE:PNN, OTC:PEGRY) all rose 2.6%, 2.4% and 1.5% respectively on the news, which Ofwat hopes will bolster transparency and therefore environmental standards.
English water companies paid £65.9bn in dividends between 1989 and 2022, according to the Guardian, while 20% of customers’ bills were going towards servicing debt or to shareholders.
Ofwat’s harsher regulation comes after public scrutiny of water companies has soared in recent years over the level of untreated sewage being released into rivers and oceans.
It had warned firms would have to meet new environmental commitments in December, adding they had “fallen short of the expectations of customers and communities”.
“We hope the introduction of these new powers will focus minds around company board tables on the importance of responsible decision making and openness,” Ofwat boss David Black commented, though based on the plans, boosting environmental health still seem up to companies.