Ofwat to adjust price controls to reflect ‘blind year’

The water regulator has calculated adjustments to water companies’ performance for 2019-20 to reconcile forecast performance with actual.

Performance varied for the final year of AMP6 with some companies doing better than anticipated and others falling behind.

Forecast figures were used in the final determinations published in December in lieu of performance data, known as the “blind year”. The forecast figures have now been replaced with actual data for the final year of AMP6 to accurately reflect performance.

The largest proposed revenue adjustments are Anglian (-£28.7million), Severn Trent (-£15.8 million) and Thames (+£33.6 million) and Yorkshire (+£19.3 million).

Companies that performed better than expected may receive revenue payments and those that did not meet the expectation will have to return the money to customers.

Ofwat’s chief executive Rachel Fletcher said the reconciliation is an important step to hold companies to account and maintain incentives.

The regulator has proposed interventions on some companies to include underperformance and outperformance payments to reflect how the companies scored against their outcome deliver incentives (ODIs) during the year.

The majority of interventions proposed by Ofwat relate to performance commitments and ODIs. For Welsh Water, the regulator proposed to include an underperformance payment for asset serviceability.

For Severn Trent underperformance payments on internal and external flooding may be increased; Southern may now incur underperformance payments for delays to capital investment projects; Thames may incur an underperformance payment for leakage after a change in methodology; Portsmouth may face a reduction to its leakage outperformance and per capita consumption (PCC) calculations adjusted.

With four companies subject to re-determinations from the Competition and Markets Authority (CMA), Ofwat said interventions for Anglian, Bristol, Northumbrian and Yorkshire will not be enacted until the CMA decision. The regulator said it assumes the blind year adjustments for the four appellants will apply in the same way, but the CMA’s decision could affect when and how the adjustment is applied. An initial decision from the CMA is expected this week.

Bristol’s director of strategy and regulation, Iain Mcguffog, told Utility Week: “We’re pleased Ofwat has accepted the calculation of our 2019-20 blind year adjustments. The main factor influencing this adjustment is our 5 per cent outperformance on our leakage target. We have the lowest leakage in the industry and our aim is to reduce it even further for the benefit of our customers and environment.”

Companies and stakeholders are invited to submit responses to the adjustments as part of a consultation ahead of final adjustments being published in November.