top of page
  • by Karma Loveday

Ofwat consults on PR24 rewards and penalties

In a discussion paper, Ofwat has called for further views on how Outcome Delivery Incentive (ODI) rates for common Performance Commitments (PCs) should be set at PR24.

The regulator set out in a May 2021 consultation that it was considering revising the standard ODI rate formula and might take a different approach to setting ODI rates for asset health related PCs.

The new discussion paper, open for responses until 25 March, considered two broad approaches to setting ODI rates: bottom-up, set at the level of each PC, primarily based on estimates of customer benefits, or potentially using cost estimates where necessary; and a top-down allocation approach, where ODI rates are derived from a company's overall potential payments informed by customers' priorities and regulatory judgement.

It also considered whether to retain enhanced ODIs – rates that are higher than the standard rates and are only granted beyond a certain performance threshold – at PR24 and if so, how these enhanced ODIs should be designed.

Ofwat said responses would be considered and ODI design proposals made as part of the draft PR24 methodology due to be published in July 2022. It added the draft methodology would also contain further details of its wider proposed approach to ODIs, including how to set caps, collars, sharing mechanisms, the appropriate risk range for ODIs, and measuring ODI risk.


bottom of page