Water industry regulator Ofwat has issued further clarification on how issues regarding leakage will be treated in the 2019 Price Review process.
The clarification forms part of Ofwat’s response to the first set of queries received on the PR19 final methodology – the regulator has committed to publishing its response to queries raised which are relevant to other stakeholders.
Ofwat has confirmed that its approach to leakage performance commitments will take account of companies that might want to start their improvements to reduce leakage now ahead of the 2020-25 price control period.
Ofwat has also explained that the approach to the threshold for enhanced outperformance payments is different for leakage to the other common performance commitments. The regulator has referred to Appendix 2 of the final methodology which covers delivering outcomes for customers:
“Companies could include an enhanced outperformance payment in their ODI to incentivise a major improvement in leakage performance, for example.”
“The threshold for the enhanced outperformance payments should be set at the performance level of the current leading company, or preferably higher (for example, including a forecast improvement in addition to that performance level).”
Ofwat said that this illustrates that there is a different approach to the threshold for enhanced outperformance payments for leakage than for the other common performance commitments. However, if a company proposed a threshold for enhanced outperformance payments for leakage that was not at least at the performance level of the current leading company it would "need to provide a convincing case for its approach", Ofwat added.
Other issues where the regulator has issued further clarification include:
Bioresources
Confirmation that opportunities to innovate identified within the bioresources price control cannot utilise the direct procurement for customers (DPC) approach. Ofwat reaffirmed that it has separate proposals to develop markets in bioresources including procurement of bioresource treatment, transport and disposal from third parties.
Water treatment works compliance
Confirmation that Water only Companies (WoCs) will not have to have treatment works compliance as a common performance commitment. While treatment works compliance is the common performance commitment for wastewater non-infrastructure asset health, Ofwat has noted that water treatment works “make up a relatively small proportion of all treatment works for most water and sewerage companies.”
Water-only companies (WoCs) can have treatment works compliance as a bespoke performance commitment if this is a particular issue for the company, its customers and/or its stakeholders.
However, the regulator does not intend to make treatment works compliance a common performance commitment for water-only companies because it wants companies to have a balanced package of common and bespoke performance commitments. The clarification paper states:
“We consider requiring water-only companies to have a common performance commitment on treatment works compliance, when its purpose was to ensure water and sewerage companies had an asset health performance commitment on wastewater noninfrastructure, is not necessary and could shift the balance too far towards common performance commitments for water-only companies.”
Click here to download PR19 final methodology queries and answers - 15 January 2018
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