Portsmouth Water – Delivering Outcomes for Customers Final Decisions
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December 2019 Portsmouth Water ‒ Delivering outcomes for customers final decisions www.ofwat.gov.uk PR19 final determinations: Portsmouth Water – Delivering outcomes for customers final decisions PR19 final determinations: Portsmouth Water – Delivering outcomes for customers final decisions In our draft determinations we published the ‘40TDelivering outcomes for customers actions and interventions40T’ document for each company. This document set out the actions from our initial assessment of plans, a summary of the company’s response to the action, our assessment of the company’s response, and the interventions we made as part of the draft determination. It also set out any interventions that did not result from an initial assessment of plans action, which we made as part of the draft determination. This final determination document sets out the decisions we make for the final determination in response to representations received on our draft determinations and any other changes for the final determination. Table 1 below sets out the draft determination decisions on performance commitments that were the subject of representations from the company, a summary of the company representation, our assessment and rationale for the final determination decision and our decisions for the final determination. Table 2 sets out the draft determination decisions on performance commitments that were the subject of representations from other stakeholders, a summary of the other stakeholder representations, our assessment and rationale for the final determination decision and our decisions for the final determination. Table 3 sets out any changes for the final determinations that are not resulting from representations received relating to the company. Each performance commitment has a unique reference. The prefix ‘PR19PRT’ denotes Portsmouth Water. For all other documents related to the Portsmouth Water’s final determination, please see the 40Tfinal determinations webpage. 50TOur ‘Outcomes performance commitment appendix’ for the company is published alongside this document. These documents are intended to be fully consistent. In the event of any inconsistency, then the ‘Outcomes performance commitment appendix’ takes precedence in all instances. Table 1: Portsmouth Water - Representations in response to the draft determination 50TPerformance 50TType Our intervention for the draft 50TSummary of company representation 50TOur assessment and rationale for the final Decisions for the final commitment determination determination decision determination Per Capita Performance The intervention we made at draft The company requests we reconsider our position No change for the final determination. N/A Consumption (PCC) commitment levels determination was to set the and accept its original 5% reduction proposal. performance commitment The company is located in the South East which is considered a PR19PRT_PRT- percentage reduction levels to the The company does not revise its forecast but does water stressed region overall. While the company’s own area Water Resources 03 following values: explain in its supporting narrative that its forecast does not have water stressed status, the company’s Water starting value has increased since the September Resources Management Plan is heavily reliant on demand 20-21 = 1.3% business plan submission, so a 5% reduction would management including reducing per capita consumption. We 2021-22 = 2.5% now mean a change from 149.3 l/p/d to 141.8 l/p/d. consider that the future position of the company needs to be taken into account when setting the per capita consumption 2022-23 = 3.8% The company discusses a range of reasons why our performance commitment levels such as its future supply to 2023-24 = 5.0% proposal fails to consider its very specific local Southern Water. 2024-25 = 6.3% circumstances: current performance is already efficient for the region, the impact of metering will be The company states we had a limited consideration of its Units: Percentage reduction from limited due to the lowest charges in the sector, historical position with surplus water balances, low charges and 2019-20 baseline using 3 year metering penetration needs to be at least 50% to low drivers for metering. We assess companies’ proposed PCC average (%) achieve significant reduction, its inability to performance levels against a range of criteria. This assessment compulsory meter properties limits the company’s takes into account company-specific factors such as options relative to neighbours, its starting point is 1 PR19 final determinations: Portsmouth Water – Delivering outcomes for customers final decisions 50TPerformance 50TType Our intervention for the draft 50TSummary of company representation 50TOur assessment and rationale for the final Decisions for the final commitment determination determination decision determination likely to be higher than previously expected, there supply/demand position in its region and metering penetration has been limited consideration of Portsmouth when considering whether to intervene. Water’s historical position, and that its customers do not support anything other than widespread We do not set common levels for all companies because they compulsory metering. are starting from a different place and have different circumstances but expect all companies to show ambition in PCC reductions and we consider that the company fails to consider its future position (supply to Southern Water) and that its historical position has deteriorated (it now has one of the highest, worst, PCC in the sector). For this reason we consider that the proposed levels show a lack of ambition. We consider historical comparisons of achievability of PCC reductions in PR09 and PR14. We consider that reductions of 6% or more are achievable in one five-year period as evidenced by historical reductions, achieved even by companies with low metering penetration. Therefore we can identify no other reason why we should make a change from our draft determination. Biodiversity reward Performance Our intervention at draft The company notes our intervention and the Change for the final determination. We introduce end-of-period ODI commitment determination was to remove concerns that the Grants Scheme is still under rates for 2024-25 and set them to: PR19PRT_PRT- definition, ODI type outperformance payments from development. It states that it has carried out further We note that this performance commitment is intended to work Water Resources-01 and ODI timing. this performance commitment, work to improve the measure. The company in tandem with the company’s ‘Biodiversity penalty’ performance Underperformance rate: and also to set in-period provides a methodology and a timeline for the commitment, a legal requirement for improving biodiversity on - £0.186m/value of grant awarded performance commitment levels, implementation of the scheme by April 2020. It the company’s owned sites. However, the two performance (£) without the flexibility of carrying clarifies that this incentive works in tandem with its commitments are defined and measured differently: the forward any outperformance or existing incentive to maintain and enhance ‘Biodiversity penalty’ performance commitment measures the Outperformance rate: underperformance. These are as biodiversity on its sites. The company states that percentage of sites with identified priority habitat that are in £0.186/value of grant awarded (£) follows: the grant scheme goes significantly beyond its legal good stewardship each year; the Biodiversity obligation and accordingly is a new and reward only reward performance commitment measures the value of grants We additionally include annual 2020-21 = 0.05 scheme. The company claims that its customers awarded to third parties for projects and activities that promote reporting on outcomes and 2021-22 = 0.05 support outperformance payments for the measure and enhance biodiversity. Therefore we consider that these are benefits resulting from the grant and would like us to reconsider our intervention. distinct performance commitments. 2022-23 = 0.05 scheme. 2023-24 = 0.05 The company states that it is concerned that our For outperformance payments to apply, we look at the following We revise the performance 2024-25 = 0.05 intervention to set annual performance commitment conditions: commitments to be based on levels limits its flexibility to carry forward any out or cumulative progress: Units: Value of grants awarded under performance and may not encourage the right Performance commitment level is stretching: this measure is in (£m) behaviours by the company. It states for example addition to the company's legal obligation and, as such, we 2020-21 = 0.050 that this may incentivise the company to cease the consider the performance commitment levels to be stretching. 2021-22 = 0.100 grant programme part way through the year when 2022-23 = 0.150 2 PR19 final determinations: Portsmouth Water – Delivering outcomes for customers final decisions 50TPerformance 50TType Our intervention for the draft 50TSummary of company representation 50TOur assessment and rationale for the final Decisions for the final commitment determination determination decision determination the annual performance commitment level of There are benefits to customers from improved performance: 2023-24 = 0.200 £50,000 has been achieved. this performance commitment is intended to improve levels of 2024-25 = 0.250 biodiversity and protect the environment by awarding funding to third parties to deliver