The water regulator has said it could raise credit quality and transparency standards amid concerns over the financial health of some suppliers.
Ofwat has put forward potential measures to strengthen water companies’ financial resilience in an effort to better protect customers.
Southern Water, Yorkshire Water and SES Water all had “weak levels of financial resilience and levels of customer service which lag behind the rest of the industry”, Ofwat said.
The regulator had already said last month that water firms will have to slash customer bills by more than £67 million next year after many failed to live up to standards set by themselves and the regulator.
It has told customers that it “is concerned that some companies have put risky financing arrangements in place” and are not linking dividend payments for shareholders to their performance for customers and the environment.
Ofwat has now outlined potential measures it hopes improve the financial position of UK suppliers.
It said this would potentially include raising the minimum standards of credit quality needed for firms to continue.
The regulator also said this could involve strengthening expectations on dividend payments being linked to performance for customers and increasing transparency.
Ofwat interim chief executive David Black said: “Water companies need to be financially resilient and transparent about their financial structures.
“We have concerns on both fronts that need addressing.
“They need to be financially secure enough to make the investment needed in the essential service they provide, maintain critical assets, and protect the environment. Without that, customers and the environment will lose out.
“Dividends should be linked to performance, and companies have to improve this if they want to rebuild the trust of their customers.”
In a separate announcement on Tuesday, the regulator proposed a “small and temporary” increase in price caps for business customers.
It said the temporary increase would “allow retailers to share some of the unexpected costs associated with bad debt that have arisen following the Covid-19 pandemic”.
The amendment would temporarily increase, over the next two years, the maximum prices that retailers are allowed to charge business customers who are on default tariffs by 0.31%, Ofwat said.