Welsh Water and Hafren Dyfrdwy earn business retail SIM rewards

August 10, 2019

Welsh Water and Hafren Dyfrdwy are to receive rewards in the PR19 price controls for business retail outperformance. 

 

Ofwat is consulting until 4 September on a £651,000 payment for Welsh Water and a £94,000 for Hafren Dyfrdwy under the business retail service incentive mechanism (business retail SIM) put in place at PR14 as a financial ODI.

 

This recognised that business retail customers of companies operating wholly or mainly in Wales that consume less than 50Ml of water a year, and all wastewater customers of these companies, would not be able to choose their water and/or wastewater retailer as businesses in England have done since April 2017. Ofwat said: “In the absence of market discipline, we wanted to ensure that these companies had a strong incentive to provide a high-quality retail service to these customers through the 2015-20 period.”

 

The business retail SIM applies an out / underperformance payment range of +6% to -12% of business retail revenues. Under the consultation proposals, Welsh Water will receive a +1.77% reward and Hafren Dyfrdwy a +5.53% reward.

 

The mechanism operates in a similar way to the residential SIM, but is based on complaints data (written complaints and CC Water investigations) only, not customer satisfaction survey results as well. Incumbent performance before 2017, and the performance of retailers with 2000+ supply points after 2017 are used as comparators. 

Ofwat made adjustments to the PR14 proposals to take account of Dee Valley’s purchase by Severn Trent (and the subsequent geographical area served alterations and renaming as Hafren).

 

The top performing company in the business retail SIM was SES Water, which secured a notional 6% reward, while Everflow was at the bottom of the table with a 12% penalty. These are for comparative purposes only as actual rewards/penalties are only available for the Welsh companies.   

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