Severn Trent may soon be able to charge almost 5 million customers an extra £60m in total on their water bills as a reward for exceeding its own customer service targets.
The water firm, which is listed on the FTSE 100, told investors on Wednesday that it was on track to get the multimillion-pound award this year through the water regulator’s incentive plan.
Ofwat’s scheme allows water companies to charge households higher bills as a reward for exceeding their performance targets, but demands discounts for customers if water companies fall short.
Severn Trent is likely to collect the reward from its 4.8 million customers – located in Birmingham and the wider Midlands region – over a number of years to avoid a sudden change to bills.
The company said it expected to make “at least” £50m for its “sector-leading performance” for customers. The pre-tax sum is calculated in 2017-18 prices, which today would mean a windfall of more than £62m or almost £13 per customer.
Households and businesses in the Midlands could notice a modest increase in their bills from next April to reward the water company for exceeding targets, which include limiting sewer blockages and “inspiring our customers to use water wisely”.
Ofwat is expected to review the water company’s data before making a final decision on whether it met its targets in November. Its findings would then determine bills from April 2024. Although water companies may be allowed to claim more money from customers as a result of the review, they can also choose not to.
Severn Trent’s expected financial bonus has emerged as water companies face fierce criticism for failing to meet environmental standards by overseeing significant sewage overflows and the pollution of major rivers.
Earlier this month campaigners left a bucket of fake sewage at Severn Trent’s Coventry headquarters in a protest over its record on sewage and leaks. In 2021, the firm was fined £1.5m for illegal sewage discharges from its wastewater treatment plants.
Liv Garfield, the chief executive of Severn Trent, said the company had made “a good start to the year” by delivering the performance its customers and investors expected.
Garfield is one of the highest paid bosses in the water sector after her pay packet grew to £3.9m last year, or 28 times the average Severn Trent employee. Pirc, which advises shareholders on how to vote at annual meetings, called for a vote against her “excessive” pay. More than 95% of shareholders backed the company’s pay policy.
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Severn Trent’s investors have also enjoyed higher returns in the last year. The company increased its dividend to more than £260m last year, from £255m the year before, despite growing public anger over payments made by water suppliers to their shareholders and executives.
“We recognise that there is more we can do and we are committed to going further, faster, to deliver the best possible outcomes for our customers and the environment,” Garfield said. “The business is well placed to deliver the progress needed with a highly engaged workforce, sustained operational leadership and a strong balance sheet, supporting future investment.”
Severn Trent told investors that it had become the first water company to achieve a top rating from The Environment Agency for four consecutive years. It also ruled out a hosepipe ban for its customers this summer after managing to fill its reservoirs to almost 77%, more than 10% higher than at this point last year.
