Severn Trent welcomes proposal to increase wastewater ODI caps

Severn Trent welcomed a proposal from the water industry regulator Ofwat on Thursday, which would see the cap on waste water customer outcome delivery incentives (ODIs) lifted for the remainder of the current asset management period, AMP6.

Ofwat published a document titled 'Final Determination of in-period ODIs for 2018' on Thursday morning, which proposed that the cap on waste water customer ODIs would be increased to 2.6% of return on regulatory equity (RoRE) from 2%, based on performance from 1 January 2019.

Targets for internal and external sewer flooding and category three pollution incidents would also become tougher, Severn Trent said, by being set at the rates achieved in 2017/18, effective from 1 January 2019.

Additionally, the incentive rate for external sewer flooding would be reduced to £2,967 per incident from 1 January 2019.

“We are pleased that Ofwat has recognised the valuable role that incentivisation plays in enabling us to push forward our frontier performance in wastewater,” Severn Trent said in its statement.

“The tougher targets will lock in the significant improvements we have delivered since the start of the AMP and the increase in the customer ODI cap will allow us to enhance our performance even further, to the benefit of both our customers and the environment.”

Severn Trent said it had “fully embraced” the role of incentivisation in the sector, and “firmly believed” it was in the best interests of customers, of whom 72% supported the principle of uncapping, based on a survey of 4,000 of them.

“We are therefore pleased to accept Ofwat's proposal.”

The company said the prospective changes would have a “limited impact” on customer ODIs in the remainder of the 2019 financial year, and it continued to guide to a net neutral customer ODI position for the full year.

“We will now have the opportunity to receive further outperformance payments in the 2020 financial year for some of our longer term customer ODIs, such as the Water Framework Directive, which would otherwise have been restricted due to the previous cap.

“We will now explore cost beneficial options to fully realise these opportunities and will provide guidance for the 2020 financial year in our full year results announcement on 22 May 2019.”