Ofwat has published new guidelines setting out how water companies should operate the abstraction incentive mechanism (AIM) which is due to start in reputational form from 1 April 2016.

The AIM has the objective of encouraging water companies to reduce the environmental impact of abstracting water at environmentally sensitive sites when water is scarce.

No water company wholly or mainly in Wales has proposed an AIM site and the environmental information currently held by the regulator does not suggest there is a need for them to do so. Ofwat therefore expects the AIM guidelines will only apply to water companies wholly or mainly in England.

The AIM is a regulatory incentive mechanism intended to complement the existing tools to reduce abstraction from sensitive sites, such as abstraction licence changes or licence conditions which require abstractions to cease during periods of low flows.

The AIM also complements Ofwat’s water trading incentives by discouraging exports from environmentally sensitive sites not covered by other regulatory processes.

In order for water companies to operate the AIM they will need to:

• Identify the abstractions sites to which the AIM applies;
• Identify the trigger points for each AIM site;
• Identify the abstraction baseline for each AIM site;
• Capture abstraction data at each AIM site; and
• Report the data through their annual performance report.

Introducing the guidelines, Ofwat said:

“The reputational AIM will contribute to our new resilience duty, for example, by encouraging companies to manage water resources in sustainable ways in response to increasing environmental pressures and population growth.”

“We intend that the reputational AIM will reveal useful information which could inform the UK Government’s and Welsh Government’s planned abstraction reforms.”

“This information could also help the development of a version of the AIM with financial incentives such as penalties and/or rewards which might form part of PR19.”

To enhance the reputational impact of the AIM, Ofwat is planning to collate the companies’ AIM performance on its website to  allow customers and stakeholders to compare companies’ performance.

The regulator will publish AIM performances after companies have submitted their annual performance reports (i.e. after July 2017).

Click here to download Guidelines on the abstraction incentive mechanism