Ensuring we meet customer needs
Customer Outcome Delivery Incentives (ODIs) are a measure used by Ofwat to monitor our performance.
They are designed with customers to make sure our objectives align with things that matter most to them. If we exceed these targets, we unlock significant financial outperformance rewards. If we fail to meet them, we incur a penalty.
How we decide our performance commitments
As part of our planning process for each five-year Asset Management Period (AMP), we conduct extensive customer research, speaking to around 250,000 people.
We look at all kinds of interactions with our customers and wider stakeholder base to fully understand our customers’ and stakeholders’ priorities.
Our performance commitments for the next five years
Our AMP7 plans, covering the five year period from 2020 to 2025, were approved first time, meaning we were fast-tracked and able to immediately start putting our plans into action.
Severn Trent Group made performance commitments for both Severn Trent and Hafren Dyfrdwy, which were assessed by Ofwat.
How the reward and penalty ranges are determined
As part of our customer research, we conduct willingness-to-pay surveys, alongside other cost-benefit assessments, to work out how much customers are willing to pay per unit of improvement in each measure.
How rewards and penalties are administered
The majority of ODI rewards and penalties are taken in period through revenue adjustments.
However, some ODIs that are measured over the course of the whole AMP have the net reward or penalty reflected through Regulatory Capital Value adjustments or future revenue at the end of the five year period.
We report on our ODI performance annually, and we claim our net ODI reward or penalty for the year with a two year delay.
This allows our actual performance to be independently verified by our auditors, and give Ofwat opportunity to approve the changes to price limits through the Scheme of Charges.
This system is intended to match the change in bills as closely as possible with the service delivered to trigger that change.
However, we can choose to defer payment of these rewards in order to reduce volatility in bill charges.
In the AMP7 Final Determination of December 2019, Ofwat determined that, from then onwards, any rewards in excess of 3% Return on Regulated Equity in any given year need to be split fifty-fifty with customers.
Our ODI performance through Asset Management Plan 6
|£ million||Year 1
|Year 4 (2018/2019)||Year 5 (2019/2020)||AMP 6 (2012/2013 prices)|
|Gross ODI earned||23||47||72||-4||36||174|
|ODI reward carried forward into AMP 7||-||33||78||-4||36||143*|
|Amount recognised 'in year'||23||14||-6||0||0|
|ODI recognised in revenue (two year lag)||23||14||-6|
*All together we have deferred £191 million (in nominal prices) of customer ODI rewards from AMP 6 to AMP 7. These rewards are reflected within our Final Determination for AMP 7, and are evenly phased across the five years.
Our Asset Management Plan 7 ODIs
There are three categories of ODI: comparative, common and bespoke. Here's how our ODIs for AMP7 are categorised.
In the first year of AMP7 (2020/21) we continued to outperform and delivered a sector leading c.£77m in ODI reward.
Comparative ODIs measure performance relative to other water companies, with upper quartile performance rewarded.
Our AMP7 comparative ODIs are:
- Supply interruptions
- Internal sewer flooding (enhanced)
Common ODIs assess each company against a common definition, measured in the same way for all.
Our AMP7 common ODIs are:
Bespoke ODIs are measures that have been agreed with Ofwat as part of our Price Review 2019 plan and are only applicable to Severn Trent.
Our AMP7 bespoke ODIs for Severn Trent are:
Bespoke ODIs are measures that have been agreed with Ofwat as part of our Price Review 2019 plan and are only applicable to Hafren Dyfrdwy.
Our AMP7 bespoke ODIs for Hafren Dyfrdwy are: