We work with the Drinking Water Inspectorate, Environment Agency and Ofwat to determine investment requirements, and we currently invest more than four times what we pay out in the form of dividends.
Once investment requirements have been agreed, we then carry out the work over five years as set out in our business plan – we have a 100% record for delivering these improvements.
How our charges are set
Ofwat sets the prices we can charge customers to make sure efficiency, value for money, and customer protection are achieved.
We begin the process by preparing a five-year business plan, which sets out our proposed commitments, investments and how much this will cost.
Ofwat then sets a price formula that enables us to put the plan into practice while limiting increases in our charges each year.
Learn more about how our charges are set.
Where our revenue comes from
Because money collected from customer bills alone wouldn’t fund the levels of investment required, a proportion of this investment needs to come from the competitive financial markets, either through borrowing (debt) or through investment (equity).
- Customer bills – the money customers pay us for our services.
- Borrowing (debt) – money borrowed from banks, similar to a mortgage on a home.
- Investment (equity) – direct contributions from our owners and shareholders.
How and why we make a profit
Just as mortgage providers for homeowners expect a return on the finance (or capital) they lend, water companies must provide a reasonable return to investors – the providers of capital. This means that they must make a profit to reward their investors.
The water industry regulator Ofwat sets the rate of return to investors for the equity they have invested in the business. In 2022/23 dividend payments represented an approximate 5.5% return. This is similar to the interest currently being paid on a high-street savings account.
This is heavily scrutinised by Ofwat, which has powers that enable dividends to be blocked where payouts threaten the financial resilience of the business and take enforcement action against water companies where payouts are not linked to performance.
Find out more about Ofwat's power to stop dividend payments.
Private ownership
It was always assumed that after privatisation, water companies would make profits but also invest very heavily in improvements. At Wessex Water both things have happened. In fact, after privatisation in 1989, investment levels rose by 70%.
YTL has been a stable owner of Wessex Water for more than 20 years, maintaining a gearing (debt) ratio in line with regulatory requirements and financial covenants and avoiding any risk to our financial stability.
It also reinvests some of the company’s profits into other UK-based projects and businesses, which creates jobs for local people and boosts the economy.