Ofwat confirms 2015-16 outcome delivery incentive rewards and penalties

Ofwat yesterday published final determinations for the three companies who opted for in-period Outcome Delivery Incentives at PR14. These were unchanged from the draft decisions it issued on 1 November.

Severn Trent

The company was awarded the full reward it claimed, a hefty £18.8m extra on its wholesale price controls in 2017-18 (for one year only). This comprises a £0.98m reduction on the water side, and a £19.8 increase on wastewater, reflecting its outperformance on its category 3 pollution incidents target by 32%, its internal sewer flooding target by 21% and its external sewer flooding target by 7% in 2015-16.

The bill impact for an average Severn Trent combined customer is a £6 increase (for 2017-18 only), comprising a 50p reduction on water and a £6.50 increase on sewerage. Severn Trent voluntarily gave up £1m of additional ODI revenue, for reasons relating to a leakage calculation error and in respect of customer perceptions following a small number of larger supply loss incidents.

Anglian Water

Anglian too was granted what it asked for – a £0.5m increase in its water price control for 2017-18, on the back of leakage outperformance. Its leakage in 2015-16 was 189 Ml/d as against its performance commitment target of 192 Ml/d. This equates for the average customer to a 27p water price rise for next year.

South West Water:

The company incurred a net penalty of £1.7m in 2017-18, comprising a wastewater penalty of £1.9m (largely a result of missing its target on category 1 and 2 wastewater pollution incidents by seven incidents), partially offset by a small net reward of £0.14 million in water. This would result in an average wastewater bill reduction of £2 for 2017-18.

However Ofwat accepted a proposal put forward by South West and backed by its independent WaterShare panel (which oversees its WaterShare framework, a mechanism to share outperformance benefits with customers in a timely manner) not to impose the penalty in 2017-18. The company and panel have said the penalty would be better deferred to PR19, when it could be offset against the £3.56m end of period rewards the company accrued in 2015-16 – with a view to keeping bills smooth. Ofwat further noted South West Water is returning £3.1 million of outperformance to customers by reinvesting to improve services as part of its WaterShare framework.

South West Water accepted its category 1 and 2 under performance but pointed out that six of the seven incidents related to amenity restrictions because of the risk of pollution, rather than proven pollution, and that its overall environmental performance in the year in question improved.