Severn Trent calls for enhanced role for ODIs

Severn Trent highlights the opportunities for rewards for improvements at PR19

Outcome delivery incentives (ODIs) should be made more financially significant in the next price review while there should be greater use of in-period ODIs, Severn Trent has argued in a positioning paper.

In the second of its ‘Charting a Sustainable Course’ publications, the utility has outlined its views on how incentives in the water industry regulatory framework could be further developed to drive companies to deliver improved customer service, better value and a sustainable agenda.

Called ‘designing incentives to deliver for customers’, and available on the company’s website, the document looks back at some of the benefits PR14 brought to customers, as well as looking forward to PR19 and highlighting the opportunities for rewards for improvements delivering better outcomes for customers.

Tony Ballance, director of strategy and regulation at Severn Trent, said: “The aim of the regulatory changes we’ve seen in the water industry in recent years are to encourage companies to put customers at the heart of all they do. This means that everyone is on a journey as regulators and companies look at the best ways to drive the sector to deliver for customers.

“In Designing incentives we set our thinking about a number of factors, including ODIs, PR19 and financing issues as we look to promote a debate in the run up to 2019.”

Among Severn Trent’s recommendations in the new document are:

• There should be greater use of in-period ODIs to provide a clearer and stronger link between performance, remuneration and bill impacts;
• The financial significance of ODIs should be increased in PR19 so that companies can make more revenue dependent on what matters to customers (subject to a willingness to pay);
• There should be no caps applied to forecast totex underspend to avoid undermining incentives on companies to develop more challenging plans;
• More than one category could be used to reward higher quality or more challenging business plans depending on the level of ambition shown; and
• When the longer-term nature of decisions associated with areas such as resilience raise difficulties for the development of effective ODIs, output type incentives could be applied.

“For us, a workable overall package for PR19 to drive further efficiency overall and improved services for customers needs to be challenging, realistic, and clear and credible,” said Dr Ballance.

“Above all, the new package of incentives needs to drive leading companies to innovate and to become even more efficient, while also ensuring we can continue to finance our businesses effectively.”

The paper is available on Severn Trent’s website here.

This article first appeared on wwtonline