Dwr Cymru/Welsh Water was the worst-performing water firm in England and Wales for external sewer flooding last year and missed the majority of its operational targets, according to industry regulator Ofwat.
In its latest annual water company operational performance report, Ofwat said Welsh Water achieved just six of its 23 targets in 2025-26, the second lowest proportion in the water sector. As a result, it has been given an “off track” ranking alongside South East Water, South West Water, Southern Water, Thames Water and Yorkshire.
Leakage and pollution failures
Ofwat said of Welsh Water: “Despite its annual leakage levels having improved slightly, it was one of only two companies to have missed its targets every year since 2020-21 and one of four companies to report higher annual leakage levels in 2025-26 than in 2017-18.
“It was also the sector’s worst performer for external sewer flooding and one of only two companies to miss its target. Serious pollution incidents increased by 50% from six in 2024 to nine in 2025. Despite improving water supply interruptions by 40% from 2024-25, it recorded the second-worst performance in the sector.”
However, Ofwat said Welsh Water met its internal sewer flooding target for the fifth consecutive year. Storm overflows performance improved by 14% from 2024-25, although it fell short of its target.
Company response
In response, a spokesman for Welsh Water said: “We recognise that our environmental performance is not good enough. Our customers and communities rightly expect better, and we apologise for the environmental harm we have caused.
“We have worked hard in 2025 but much remains to be done. There were signs of progress though: we improved against two of the six environmental performance assessment measures and recorded the second-lowest rate of pollution incidents per 10,000 kilometres of sewer in the sector.
“We also improved against several Ofwat performance measures, with fewer customer contacts about water quality, less internal sewer flooding and shorter water supply interruptions.
“These improvements are important, but not sufficient and we must build on them and deliver consistently better results across all areas of our service.
“From 2026, changes to regulatory reporting guidance mean a wider range of discharges will be counted as pollution incidents, including some previously not counted because they have no environmental impact.
“Natural Resources Wales expects this to increase reported numbers across the industry even if the performance doesn’t change, so future totals will need to be understood in that context when comparing performance with earlier years. Our commitment to prevent pollution and reduce environmental harm remains unchanged.
“We know that rebuilding trust depends on results. Our focus is on ensuring that our investment and the changes we are making deliver sustained, measurable improvements for our customers and the environment.”
Hafren Dyfrdwy rated 'good'
North Wales water company Hafren Dyfrdwy has been given the highest classification of “good” for its operational performance alongside Severn Trent Water and Wessex Water. The regulator said it achieved 16 of 22 targets in 2025-26.
Significant improvements included a 60% reduction in internal sewer flooding, moving from lower to upper quartile performance in the sector. It also improved its external sewer flooding performance by 34%, delivering an upper quartile performance, and improved storm overflows performance by 45%, meeting its target.
It was also one of only two companies to meet its target for total pollution incidents and reported zero serious pollution incidents. However, it did not meet its water supply interruptions target, although performance improved by 20%.
Last week Ofwat raised concerns over the ability of Welsh Water to finance major investments it has planned while maintaining financial resilience. The assessment comes in the regulator’s latest annual monitoring financial report, which covers the year ending 31 March 2026.
Welsh Water is planning to spend £4bn in capital investment in the five years to March 2030 to deal with issues of flooding, river water quality, pollution incidents and sewage discharges into rivers. With no external shareholders, unlike other water companies, Welsh Water is almost solely reliant on bond markets to fund capital investment projects set out in its latest five-year assessed management plan period (AMP8) 2025-30.
Ofwat has moved Welsh Water into the elevated concerned category for financial resilience from standard, due to concerns about its ability to secure finance efficiently over the medium and long term while delivering its investment programme.
The report adds: “Net debt and financing costs continue to increase, whilst ongoing operational challenges, delivery of the wastewater enforcement undertakings, and a substantial investment programme present significant execution risks.
“The company’s credit profile has weakened, with ratings falling from A minus in 2024 to Baa1 currently. Rating agencies have highlighted concerns regarding the limited flexibility of Dwr Cymru’s capital structure as it seeks to deliver an operational turnaround alongside significant investment and environmental obligations.
“Continued ODI (outcome delivery incentives) under performance, together with environmental and customer service challenges, creates uncertainty around future financial performance and continues to weigh on external credit assessments.
“Welsh Water is entering the most capital-intensive period in its history, with over £4bn of expenditure still to be delivered by 2030. Given its existing capital structure and increasing financing costs, there remains uncertainty over how this programme can be funded efficiently while maintaining financial resilience.
“We therefore consider it is appropriate to move Dwr Cymru into elevated concern and increase our monitoring of the company.”
Three water companies, Thames, South East and Southern, sit in the more serious “action required” category.
