Ofwat consults on underperformance penalties and outperformance payments for three water companies

Posted: Tuesday 31st October 2017

Ofwat will begin consulting on proposals to adjust the price controls for three of the eighteen water companies in England and Wales, to be applied from April of next year.

We propose to apply a net underperformance penalty to South West Water of £1.08m which reflects underperformance on pollution incidents across the last two years.

Severn Trent Water has made major progress in reducing sewer flooding - one of the worst service failures customers can experience - which together with the company's performance in other areas, results in a proposed net outperformance payment of £38.4m. The company has proposed to take only £11.4m of the payment next year.

Anglian Water's reduction in leakage levels - an area of great importance to its customers - will give the company a proposed net outperformance payment of £2.6m.

All water companies have committed to improve their performance for 2015-20 based on customer consultation. Companies that underperform incur penalties - such as Thames Water's £8.55m penalty for failing to meet its leakage commitment - while companies that deliver above and beyond for customers, can earn outperformance payments.

Three companies chose to receive some of their underperformance penalties and outperformance payments more immediately after the performance in question and this consultation relates to those payments for those companies. The others have opted to have all their underperformance penalties and outperformance payments combined and applied at the time of Ofwat's next price review in 2019, when we will set the service package that customers will receive and the price they will pay in the period 2020-2025. Ofwat is proposing that from 2020, all companies will receive some of their penalties and payments close to the performance in question.

Ofwat Chief Executive, Cathryn Ross said:

"Under our framework, what customers pay reflects how their water companies perform, ensuring that companies have their attention fixed firmly on delivering the things that matter most to their customers.

"As we head into our 2019 price review, we've been consistently clear that we are expecting all water companies to be ever more ambitious and stretching in what they deliver for customers. For companies that go above and beyond, setting new standards across the sector, there will be hard-earned payments; companies that fail to perform will face stiff penalties."




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December 2018

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