SVT considering Ofwat proposal to increase ODI cap

LEI: 213800RPBXRETY4A4C59                     

1 November 2018

Severn Trent Plc considering Ofwat's proposal to increase Customer ODI cap

Earlier this year Severn Trent Plc applied to lift the cap on its waste water customer ODIs¹, in line with the methodology prescribed by Ofwat in PR14. This application followed a survey of over 4,000 customers, of whom 72% supported the principle of uncapping, reflecting the strong benefits that a culture of incentivisation continues to deliver for our customers and the environment.

We note two items from Ofwat's publication 'Draft determination of in-period ODIs for 2018', released this morning:

1.   An adjustment to our 2017/18 supply interruptions customer ODI performance, resulting in a net outperformance payment across all customer ODIs for 2017/18 of £72 million² in 2012/13 prices⁴ pre-tax.

2.   A proposal to increase the AMP6³ cap on our waste water customer ODIs from 2.0% to 2.6% of Regulated Equity, which would increase the potential AMP6 incentives by c. £56 million in 2012/13 prices⁴ pre-tax. Ofwat's proposal is to also reset performance level targets for internal and external sewer flooding and pollutions to the level achieved in 2017/18, and reduce the incentive rate for external sewer flooding by 85%, for the remaining two years of the AMP.

We will now assess the proposal outlined in the consultation document and respond to Ofwat in due course. We will update the market following this consultation process.

¹ Customer Outcome Delivery Incentives

² Previously announced as £80 million in 2017/18 full year results

³ Asset Management Period 6, from 2015 to 2020

⁴ Outperformance payments and penalties are recognised in revenue with a two year lag, inflated from 2012/13 prices using RPI

Cautionary statement regarding forward-looking statements

This document contains statements that are, or may be deemed to be, 'forward-looking statements' with respect to Severn Trent's financial condition, results of operations and business and certain of Severn Trent's plans and objectives with respect to these items.

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Nothing in this document should be regarded as a profits forecast.

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