Ofwat reduces penalties for missed ODIs

Ofwat has cut the amount some water companies will have to pay back to customers and increased rewards for others in its final assessment of how firms performed on key targets last year.

The regulator announced its draft determinations on the in-period outcome delivery incentive (ODI) payments for 2021-2022 in October. At that point it proposed £150 million be returned to customers because of underperformance. Balanced against rewards for exceeding targets, this meant a sector-wide sanction of £53.4 million.

After considering feedback from the companies and other stakeholders, Ofwat has reduced the total value of penalties to £135 million, while also increasing some overperformance payments, meaning the industry will now return just under £5 million to customers.

Among the changes are a reduction in the penalty to be paid by Northumbrian Water in relation to supply interruptions during Storm Arwen last year. During the storm, 8,000 properties in Northumbrian’s area suffered supply interruptions, with 1,200 left without water for up to 45 hours. This resulted in an underperformance payment of £23 million. However, the company successfully argued that because of the significance of the disruption faced and that because the interruptions were a direct result of power failures as opposed to a fault on Northumbrian’s behalf. Ofwat agreed to reduce the penalty by £13 million.

Severn Trent had originally asked to defer almost £70 million of its outperformance payments to reduce the impact on customer bills in 2022/23. This included £46.2 million deferred from the previous year. However, after setting out how it expects its revenue to change over the coming years and the impact it expects this to have on bills, the company requested a lower deferral of £30.7 million. This took its final adjustment to a £102 million payment.

The largest penalties were for Thames and Southern, who will return £50 million and £30 million respectively because of missed targets on water treatment works compliance, pollution incidents and internal sewer flooding.

Across the sector, Ofwat highlighted its disappointment that companies had failed to provide more detail on what they are doing to drive down per capita consumption of water. It warned that companies failing to meet their 2024-25 performance commitment levels should expect to incur financial penalties.

Ofwat chief executive David Black said: “Too many water companies are failing to deliver for their customers. The poorest performers, Thames Water and Southern Water, are consistently falling beneath our expectations and those of their customers. They need to take immediate action to improve their performance and rebuild trust with the people they serve. We will continue to hold companies to account for their performance and we will make sure that they raise their game.”