Proactive Investors - Water firms risk being hit with £5 billion worth of fines over the next five years as regulators clamp down on sewage issues.
Rating agency Moody’s forecast tougher regulation by Ofwat would result in a flurry of fines over the coming years, amounting to “around £2 billion across the sector”.
“Based on the draft determination and if companies perform in line with their business plan assumptions, we estimate that most companies are likely to incur net penalties over the next five years,” Moody’s said in a report.
This is based on Ofwat’s regulatory proposals under its 2024 price review, which is set to see water companies hit with strict performance targets over the likes of sewage leaks and water quality issues.
Many water firms are already struggling with high debt, including 16 million customer-strong Thames Water, which is said to only have enough cash to last until May.
Thames has run the risk of being renationalised without new investment as a result, after racking up debt in recent decades.
Such fines could hit firms as they look to fund ambitious upgrade plans for Britain’s ageing water network following growing public scrutiny over sewage leaks in recent years.
“The draft determination responds to public and political concerns over water companies’ performance and service levels, particularly wastewater treatment,” Moody’s acknowledged.
“However, the draft also increases the risk that sector returns may not be enough to attract the equity funding the companies need to support increasing investment.”