Ofwat confirms in-period rewards and penalties

Ofwat last week confirmed it would lock in unchanged the in-period Outcome Delivery Incentive rewards and penalties it consulted on in November for four firms. This saw a net reward for Anglian Water only, with the other companies receiving net penalties, though in the case of Severn Trent this resulted from a company proposal to defer the bulk of its wastewater reward until 2020.

The details were:

• Anglian Water secured an outperformance payment of £4.6m to wholesale water bills in 2019-20 (an increase of £2.45 on the average annual household water bill in 2019-20). This was because of leakage outperformance: 9m fewer litres of water are leaking from the company’s network every day. Anglian does not have an in period wastewater ODI.

• South West Water received a net penalty of £0.27m, comprising a reward of 0.5m on water (leakage was 1m litres per day lower than its performance commitment and it had resolved 96.1% of its operational customer contacts first time in 2017-18) offset by a penalty of £0.78m on wastewater (primarily because it had three Category 1 and 2 pollution incidents rather than its commitment of zero in 2017-18, and 237 Category 3 and 4 pollution incidents rather than its commitment of 218 in 2017-18.)

• Severn Trent’s situation is more complex. It received a net penalty of £4.7m, comprising £29.6m water penalty (primarily because it underperformed on supply interruptions by 23.49 minutes) offset by £24.9m wastewater reward. However the company earned a total wastewater outperformance payment of £87.8m, primarily because its number of external sewer flooding incidents was 49% lower than its commitment; its number of internal sewer flooding incidents was 31% lower than its commitment; and its number of Category 3 pollution incidents was 13% lower than its commitment. Severn Trent proposed deferring the remaining £62.9m to future years.

• Hafren Dyfrdwy adopted Severn Trent’s ODI framework for the customers in and around Powys and Monmouthshire that transferred to it following Severn Trent’s takeover of the former Dee Valley Water and the resulting realignment of company boundaries along the Welsh border. Hence for the first time Hafren Dyfrdwy falls under the in period ODI regime, but only for its customers that were formerly with Severn Trent. The firm received a net penalty of £0.06m comprising a water penalty of £0.17m offset by a wastewater reward of £0.11m – though like Severn Trent, Hafren Dyfrdwy secured a larger wastewater reward but proposed deferring the remaining £0.28m to future years.

Ofwat also confirmed that it will reset Severn Trent Water’s targets for sewer flooding and pollution from 1 January 2019 and reduce the rate at which outperformance payments are earned for external sewer flooding. Alongside this it will raise the limit on the maximum amount of outperformance payments Severn Trent Water can receive. This follows the company outperforming all its in-period wastewater ODIs to date, and almost reaching the 2% of RORE cap set at PR14 by April this year.