Thames Water has incurred £16.4 million in penalties for under-performance against two key commitments, according to its Annual Performance Report for 2015/16.

According to the report, the company has met its leakage reduction target for the tenth year in a row, reduced written complaints by 23% and reduced total pollution incidents by 49% as it exceeded, met or came within 5% of its committed performance level for 34 of the 40 targets which are assessed on a yearly basis.

“Robust plans are in place to significantly improve performance in the six other remaining areas over the next 12 months, and for the remainder of the regulatory period, which runs to 2020“, the report says.

Thames Water said it had worked closely with its customers to set 55 ambitious performance commitments for the 2015-2020 period across its business areas – Water, Waste and Retail – and for the Thames Tideway Tunnel.

SIM - Thames still in lower quartile of customer league table

While Thames Water improved its performance in the year from 72.6 to 76.7 against Ofwat’s Service Incentive Mechanism (SIM), more than the
industry average increase, the water company still remains in the lower quartile of the customer league table. The firnm said it was focusing its efforts on securing a further improvement in performance in 2016/17.

On its performance commitments, Thames earned a Outcome Delivery Incentive (ODI) financial reward of £3.1 million for outperformance against its target for water supply interruptions of over four hours. The water company attributed the achievement to its ‘Always in Supply’ programme, which includes using more tankers, redirecting pipes and embracing technology to keep customers in supply when leaks occur, together with optimising pressures throughout the water network to reduce bursts and prioritising the replacement of the old mains.

However, the firm incurred penalties totalling £16.4 million for underperformance in two key areas.Thames failed to meet its target for customers without water for over 12 hours, attributed to three significant bursts, and incurred a penalty of £4.7 million. The utility also received a penalty of £11.7 million for sewer flooding - the report says Thames’ internal control procedures had identified a problem with the way in which it had been recording sewer flooding, leading to a higher than expected level of sewer flooding in 2015/16.

“We are working hard to exceed the targets our customers have set us, to earn our rewards and avoid further penalties in the future”, the report says.

Totex - £31m below Ofweat's Final Determination level

On its ‘totex’ expenditure of £1.768 billion in 2015/16, the report says Thames was below Ofwat’s Final Determination level by £31 million, including Thames Tideway Tunnel, in 2015/16 prices.

Commenting on bad debt provision, the report says:

“Contrary to popular belief, most bad debt comes from those who don’t want to pay their bill, rather than those who can’t afford it. We have been seeking effective ways to discourage a refusal to pay, and actively supporting customers who genuinely can’t.”

Thames faces an ongoing challenge of ensuring customers pay their water bills - a persistent failure to pay can result in ‘bad debt’. The debt, which occurs more frequently in London, increases the costs for all customers, with approximately £13 a year added to customers’ bills as a result.

Energy target missed by 1% due to more population growth than planned

On its energy performance commitment, the report says that while Thames achieved a year-on-year reduction in the level of energy it takes from the grid, achieving a net 12 GW/h reduction,it was still slightly higher than its target which it missed by 1%.

The report says this was mainly due to the need to treat and pump more water to meet demand for population growth than planned. Thames Water said:

“We remain committed to reducing our energy consumption and meeting our commitments in future years. To do this, our plans include the continued upgrade, replacement and optimisation of our pumps, providing and transporting water in less energy intensive ways and increasing our on-site renewable energy generation.”

Despite missing its greenhouse gas emissions target in 2015/16, the report says Thames Water remains committed to achieving its ambitious target of self-generating 33% of its own renewable energy by 2020 – in 2015/16 the firm generated 15% of of its own energy.

Martin Baggs: "we have set ourselves ambitious targets"

Commenting on the performance report, Martin Baggs, Chief Executive Officer of Thames Water, said:

“We provide an exceptional product, some of the world’s best quality drinking water, to our customers and then recycle their wastewater safely to the environment. Our priority is to give them a customer service to match.”

“We have seen a solid start in 2015/16, reaching major milestones and laying foundations across the company to put us in a strong position to deliver our commitments to customers, stakeholders and the environment. We have continued to invest heavily in many areas of our business, with our major investment programme exceeding £1 billion on average per annum for the 11th year in a row, while making sure our customers still benefit from the third lowest combined bill in the UK.”

“We’ve set ourselves ambitious targets and we still have a way to go, but I am delighted with the progress we have made in the last 12 months.”

For the first time, this year’s Annual Performance Report is accompanied by a report from the company’s Customer Challenge Group, the independent group which scrutinizes Thames Water’s performance on behalf of its customers.

Click here to download Thames Water Annual Performance Report 2015/16 in full.