Ofwat seeks tougher rules on ODIs, performance and resilience

Ofwat is preparing to beef up the impact of Outcome Delivery Incentives (ODIs) at PR19 in one of a raft of proposals contained in a consultation published on Wednesday on the outcomes framework for the next price review.

The regulator made suggestions for making ODIs more powerful – including enhancing their reputational impact; linking end of period ODIs to revenue rather than RCV to speed up the impact they have; removing the current aggregate cap and collar which limits rewards/penalties to +/- 2% of return on regulatory equity; and encouraging companies to increase the proportion of ODIs that carry financial rewards.

It follows that more powerful ODIs might demand Performance Commitments (PCs) to be more stretching. The consultation looks in detail at the theme of PC stretch. Among other proposals, Ofwat earmarked ten PCs that it considers so important to all customers that “it is appropriate for them to be compulsory for all companies in England and Wales to include in their outcomes packages in their business plans”.

It suggests at least six of these – water quality compliance, customer water supply interruptions, customer property sewer flooding (internal), wastewater pollution incidents, water mains bursts and sewer collapses – should carry common commitment levels and calls for views on how these should be set.

Ofwat has also turned its attention to bespoke PCs. It is seeking views on whether there are particular areas that all companies should cover with their bespoke commitments – for example, those related to vulnerable customers – and asked how it can promote stretch in its guidance on setting bespoke PCs.

The consultation also calls for views on how to better reflect resilience in outcomes, again suggesting a number of possibilities including using common resilience metrics and a suite of proposals relating to asset health.

Stakeholders have until 31 January to respond. Ofwat will feed responses in to the formation of its PR19 methodology consultation which will be published in July 2017. This will be followed in December 2017 by publication of the PR19 methodology statement.