Ofwat ruling could force United Utilities to reduce dividend levels

Water industry watchdog Ofwat says utility firms have damaged customer trust with high levels of payments to bosses and investors.

It has introduced new rules forcing firms to explain how executive pay is linked to performance and to focus on customers’ interests.

Utilities paying dividends above 5% will have to explain why that benefits customers – and not just investors.

And they will have to explain how bosses’ pay levels benefit customers.

Ofwat chief executive Rachel Fletcher said: “The decisions some water companies have made on dividends, financial structures and top executive pay have damaged customer trust.”

Steve Mogford, chief executive of North West water and wastewater group United Utilities, came under fire last month for his pay levels.

Mr Mogford earned £2.3m last year through his salary, bonuses, pensions and other benefits.

Figures from a joint investigation into company accounts by union GMB and Corporate Watch also showed that Mr Mogford has received £12m over the past five years.

They were released as part of a campaign by GMB, the union for the water industry, to bring England’s privatised water industry back into public ownership.

A spokesperson for United Utilities said at the time: “The vast majority of Steve Mogford’s remuneration is linked to the delivery of stretching targets aimed at further improving customer service, operation delivery and environmental performance.

“In 2017, his total remuneration was approximately half the average for a FTSE 100 CEO.”

Commenting on Ofwat’s move today, Russ Mould, investment director at Manchester-based investment platform AJ Bell, said United Utilities, along with other water companies, have been renowned for generous investor dividends.

“Utility companies have historically been attractive investments because of their generous dividends.

“That income stream is now being called into question after regulator Ofwat called on the sector to be more transparent about how directors and shareholders are rewarded, versus how customers benefit from their services.”

He added: “Companies like United Utilities, Pennon and Severn Trent will have to explain in their business plans how dividends, the use of debt and executive pay can be justified when looking at how they intend to deliver high levels of efficiency and service to customers.

“Essentially, the regulator is worried about water companies not meeting expectations and customers being short changed.

“High levels of gearing, dividends and executive pay have damaged trust in the sector.”

He said: “In the future, these water companies will have to show that they genuinely deliver superior performance which benefits customers and not simply rewards directors and shareholders.

“The latest announcement will raise existing concerns that water companies will have to scale back their dividends in the future and thus certain utility companies may become less popular for income-hungry investors.”

No-one was available from United Utilities to comment.