Ofwat confirms in-period outcome delivery incentives

Ofwat last week confirmed its October consultation proposals for the three companies that opted at PR14 to take in-period incentives.

• Severn Trent has earned a £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. Ofwat agreed with Severn Trent’s proposal to defer £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 will 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 has earned a £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. The uplift comes on the back of leakage outperformance, where 6m fewer litres of water a day were lost.

• South West Water: Last year, South West Water incurred a net penalty of £1.7m, though this was not imposed immediately but kept under review by Ofwat. In this year’s determinations, Ofwat will apply payments for 2015-6 performance as well as 2016-17 performance to 2018-19 bills. A net reduction of £2.09m will be 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 will result in an average water bill increase of £1.60, and an average wastewater bill reduction of £5 for 2018-19.

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