At the 2019 price review we set water companies service targets (‘performance commitments’) during 2020-25. This encourages the companies to deliver on the objectives that matter to today’s customers, future customers and the environment.
Most of companies’ performance commitments have rewards and penalties (‘outcome delivery incentives (ODIs)’) associated with them.
The majority of these ODIs are financial.
- If a company performs better than the performance commitment level, it may get a financial reward (‘outperformance payments’)
- If a company performs worse below the performance commitment level it may pay a financial penalty (‘underperformance payments’)
In this way, each company’s management and its investors are encouraged to deliver what customers want. They get outperformance payments for doing well; and make underperformance payments if they do badly.
In-period payments
Most of the outperformance or underperformance payments companies get for financial ODIs are paid to or recovered from each company every year during 2020-25 (or ‘in-period’).
We think this is better than waiting five years until the next price review process. This is because companies get the financial impact closer in time to the performance that generated it. This focuses each company’s management on delivering better services year after year and improves companies’ accountability to their customers.
In-period ODI determinations 2020-25
An in-period determination is the process by which we adjust each company’s price controls to reflect companies’ performance against these in-period ODIs.
Unlike the five yearly price reviews, in-period determinations have to be triggered by either us or the water companies. So they may not be required every year for every company.
Any in-period ODI determinations for 2022-23 and 2024-25 will appear here.
We will carry out in-period ODI determinations for 2023-24 as part of our 2024 price review.