Water companies have rejected criticism made by three environmental NGOs during the recent consultation which ended on 14^th January by industry regulator Ofwat on the proposed Abstraction Incentive Mechanism.

The AIM Taskforce membership consists of nine of the water companies, WWF-UK, Ofwat and the Environment Agency.

According to the minutes of the latest meeting of the AIM Taskforce held on 21st January, asked about the number of AIM sites companies had proposed the three environmental NGOs who responded to the consultation felt that companies as a whole were being unambitious. In contrast, the majority of company respondents considered that the number of AIM sites companies had proposed to be about right.

The same views were reflected at the Taskforce meeting, which heard that both the water companies’ respondents and the Taskforce attendees generally supported a local approach to the selection of AIM sites and the setting of baselines and trigger points. The respondents and the attendees also pointed out that AIM needs to be linked to other environmental schemes and reforms.

The companies attending explained that they had taken different approaches to identifying AIM sites, but they felt that these different approaches were reasonable given their different environmental challenges, past investment and current plans. However, the WWF-UK representative told the attendees it was “still felt some companies were being unambitious in the number of sites proposed for the AIM.”

AIM - not an appropriate mechanism for some problems e.g. long-term abstraction impacts

According to the minutes, the water company members of the Taskforce considered the number of sites reflected that a lot of measures have been taken to reduce abstraction problems and that the AIM is “not an appropriate mechanism to deal with some abstraction problems e.g. long-term abstraction impacts. “

On the issue of whether companies should engage with their Customer Challenge Groups on their selection of sites for the AIM, there was general  agreement that consultation should take place, although five respondents cautioned that “CCGs often do not include many environmental experts and so might not be well placed to challenge a company effectively.”

Taskforce members pointed that there are existing engagement processes in, for example, water resource management plans which could be used to engage on the AIM sites.

The meeting also flagged up the fact that respondents to the consultation had favoured publication of companies’ reasons for rejecting sites for the AIM by a ratio of 3 to 1. Company members of the Taskforce said they considered the October 2013 lists of sites to contain errors and be out of date which made it a poor benchmark to justify exclusions from.

The vast majority of respondents to the consultation also appear to have supported the Taskforce's reporting and monitoring proposals. However, some company members at the Taskforce meeting were concerned about how the proposals related to companies with no AIM sites and whether they could give a negative impression of those companies.

On the use of the AIM as a comparator by Ofwat, respondents and the Taskforce attendees generally thought that the comparing AIM performance was too difficult and not meaningful because of companies’ varying environmental challenges, past investment and current environmental policies.

AIM “inherently a financial tool ... rather than a reputational tool"

Respondents and Taskforce attendees also generally thought that the AIM should only be reported as part of a suite of information on environmental performance. Interestingly, according to the minutes one attendee also argued that the AIM was “inherently a financial tool to rebalance a company’s incentives to reflect environmental and customer values rather than a reputational tool or a tool for inter-company comparisons.”

Opinion appears to be divided by respondents to the consultation and Taskforce on a number of other issues, with both groups arguing for and against the need for the AIM in the long-term. Some respondents had also expressed concerns about how the AIM fits with upstream markets, other Ofwat incentives and abstraction reform.

Next steps - final AIM guidelines due in March

Ofwat now intends to reflect on the consultation responses and plans to issue draft guidelines for how the AIM would operate to Taskforce members for comment in mid-February with a final version published in March.

Several company Taskforce members said that they could start operating the AIM in April 2016. In some cases companies had not had confirmation from the local Environment Agency office that their proposals were acceptable. In those cases companies proposed that they would begin operation of their AIM sites in April 2016 on the basis of the proposals they sent to the local Environment Agency office.

Ofwat will also consider the suggestion by some Taskforce members that might be easier for companies to start the AIM in April if Ofwat would agree to the AIM being a non-comparable measure and not published, at least for the first year.

The Taskforce was set up by Ofwat in April 2015 – in August 2015 at the request of the regulator the Taskforce subsequently produced its proposals to guide Ofwat in setting a reputational incentive for the AMP6 period and potentially a financial incentive for AMP7.

.