Severn and Anglian step up rewards for incentives outperformance

This year’s draft determinations of in-period Outcome Delivery Incentives (ODI) show last year’s two winners reaping even greater reward for performance in 2016-17.

Ofwat’s draft determinations, published late October, propose the following for the three companies that opted at PR14 to take in-period incentives.

Severn Trent

Last year’s biggest winner, Severn Trent, topped the £18.8m extra added to its wholesale price controls in 2017-18 by earning a massive £38.4m reward. This comprises a £1.63m reduction on the water side (primarily due to higher than target drinking water complaints and slower than targeted leak repairs) offset by a £40m increase on wastewater, on the back of external sewer flooding incidents 23% lower than its commitment to customers, internal sewer flooding incidents 9% lower, and Category 3 pollution incidents 25% lower. Severn Trent has proposed deferring £27m of its wastewater reward to future years to smooth the bill impact for customers: the average annual wastewater bill would need to rise by £12.85 in 2018-19 if the full reward was claimed, but under the company’s plan the rise would be contained to £2.67. For dual service customers, the bill impact will be mitigated further by a small reduction (51p) to reflect the water result.

Anglian Water

Anglian too heavily boosted the £0.5m reward it earned last year to £2.6m this year. The company has an in-period ODI on the water side only, so the reward relates purely to its wholesale water control. Like last year, the uplift comes on the back of leakage outperformance, where 6m fewer litres of water a day were lost.

South West Water

Last time around, South West Water incurred a net penalty of £1.7m, though this was not imposed immediately but kept under review by Ofwat. This year’s draft determinations propose applying payments for 2015-6 performance as well as 2016-17 performance to 2018-19 bills. The determination proposed a net reduction of £2.09m by applied in 2018-19, reflecting a water reward of £1.08m for outperformance on leakage and first time resolution of operational contacts, offset by a £3.2m reduction on the wastewater side for exceeding targets on pollution incidents. This would result in an average water bill increase of £1.60, and an average wastewater bill reduction of £5 for 2018-19.

Ofwat is consulting until 20 November 2017 and will make its final determinations before 15 December. Under PR19 proposals, all companies will be subject to in-period ODIs.