Water companies have been ordered to return £158m to customers via lower bills next year after missing key targets on pollution and leaks.
But most customers will only see their bills fall by less than £10.
This is the fourth year in a row that firms have had to refund customers, prompting questions over the effectiveness of the regulator.
Industry body Water UK told the BBC that companies had made improvements across most measures and they were committed to boosting their performance.
Ofwat assesses the performance of the 17 largest water and wastewater companies in England and Wales each year against key targets, for issues such as sewer flooding, supply interruptions and water leaks.
For the second year in a row, no company achieved the top rating, although four companies did show an improvement from last year.
For the worst performing companies, failure to meet the targets means they will now have to collectively return £157.6m to customers on their bills for 2025-2026.
The effectiveness of the fines and Ofwat’s ability to regulate the industry has been questioned given companies had under-performed for four years in a row.
Defending the regulator, CEO David Black, told the BBC’s Today programme: “It is for water companies and their boards, multi-billion pound enterprises, to turnaround their performance. We agree there is much more to be done and we will continue to work to drive the sector to perform better.”
Thames Water will have to make the largest repayment to customers of £56.8m, although its overall performance improved from last year.
Despite the record fine most customers will see their bills fall by only a few pounds. Any reduction will be dwarfed by the expected long-term increase of £94 per household over the next five years, which Ofwat is currently proposing.
This price rise is still being negotiated with water companies as part of their investment plans. The companies argue that even higher bills will be needed if they are to afford the infrastructure improvements required to tackle some of the issues raised in this performance report.
Ofwat’s review looked at key targets including reducing pollution incidents, which were meant to fall by 30% between 2020 and 2025.
Companies had achieved a 15% reduction over the last few years. But that improvement has been almost wiped out by the significantly higher number of incidents last year.
The industry has said that although this performance was unacceptable, the record levels were due to heavy rain and more sites now being monitored.
But Ofwat’s David Black said: “It is clear that companies need to change and that has to start with addressing issues of culture and leadership. Too often we hear that weather, third parties or external factors are blamed for shortcomings.”
Public dissatisfaction with the industry has risen in recent years particularly in relation to pollution.
CEO of campaign group River Action James Wallace said: “This might sound like a lot of money but frankly it is a drop in the ocean for polluting water companies.”
Mr Wallace questioned whether Ofwat was an effective regulator,
“The new Government is taking some positive steps, including a review of the water sector and the introduction of a Water Bill. However, we believe the bill, as currently drafted, falls short. Where is the duty on Ofwat to prioritise the environment and penalise pollution?” he said.
David Henderson, chief executive of Water UK, told the BBC’s Today Programme: “Performance is clearly not where it should be, and companies are fully committed to boosting that performance.
“It is important to note though that it is not all bad, across every single measure all but two, water companies have delivered improvements since the start of the decade – leakage is at is lowest level in history.”
Ofwat estimates that currently about a fifth of all water put into the network in England and Wales is lost via leaks.
This is an important area for the industry to tackle because many areas of England already regularly experience water shortages and climate change is expected to exacerbate this issue. The Environment Agency estimates that the country will need an additional 5 billion litres of water a day by 2050 to support the economy and environment.
Some companies were praised in the report for their efforts to tackle this and other issues, including Severn Trent, which Ofwat said had managed to cut sewage spills by delivering improvements at 467 sites.
Severn Trent, SES Water, Northumbrian Water, and United Utilities exceeded their targets and therefore will be able to charge customers more next year, as part of a scheme to incentivise the industry.
Following the release of the report, the Department for Environment, Food and Rural Affairs said the environment secretary would be writing to the Chairs and CEOs of every water company laying out the performance improvements that he expects them to make in the coming year.
