Pollution incidents fell by one-third during AMP6 whilst customer satisfaction rose and bills dropped, an Ofwat review has found.
The regulator’s draft review of the PR14 framework showed a 36 per cent reduction in pollution incidents across the water sector during the five-year period to 2020.
However, there was little or no progress made on leakage – with only a six per cent reduction, mostly achieved in the final year when the target for PR19 had been announced. Consumption increased by two per cent to 142 litres per person per day in 2019/20.
The review explored how the PR14 framework helped achieve outcomes on prices and service levels that Ofwat will work into future price reviews.
Customer satisfaction went up by four per cent during the period and bills fell by an average of five per cent as companies were encouraged to focus on outcomes that customers wanted to see rather than outputs. This meant there was greater levels of engagements than previous reviews, which has been built upon since, Ofwat stated.
AMP6 saw the introduction of the outcomes framework, which the review described as “transformative”, delivering a sector-wide culture change that sharpened companies’ focus on customers and the environment.
Feedback showed it helped companies align business operations more closely with customer priorities by linking performance targets and financial incentives to customer outcomes. It also allowed more flexibility for companies to choose how to deliver those outcomes.
It recommended improvements for subsequent reviews including better calibration of incentive rates and more stretching service level goals – notably on leakage where Ofwat said incentive rates could have been stronger.
Overall, the sector outperformed two-thirds of all performance commitment levels, both on financial and reputational benefits. Under and over performance of outcome delivery incentives (ODIs) during the five-year period were roughly balanced.
Improvements were seen to water quality contacts, supply interruptions, mains bursts, customer satisfaction and bathing water quality. Reductions were made by all companies in pollution incidents.
Ofwat’s review also suggested there could have been stronger focus on environmental areas and the long term, including asset health, which are set to be key themes for the price review for 2025 to 2030.
“PR14 marked a new regulatory approach for the water sector and this review has allowed us to identify what has worked well, and where we could deliver more,” said Aileen Armstrong, senior director at Ofwat.
“Many of our ambitions for PR24, including to increase focus on the long term and deeper understanding of customers’ views, are possible due to the outcomes framework put in place in PR14. Our vision for greater environmental and social value builds on areas such as our approach to sustainable use of water resources. And totex is an enabler for our focus on efficiency.”