How outcome delivery incentives affect customer bills

Outcome delivery incentives (ODIs) are financial rewards and penalties set by our regulator, Ofwat, based on water company performance against regulatory targets. They affect the amount of revenue water companies can recover through customer bills in future years.

Penalties mean bills end up lower than they otherwise would have been, and rewards mean they end up higher than they would otherwise have been.

To smooth changes to customer bills across 2027/28 and 2028/29, Ofwat has agreed we can defer £66.7 million of our ODI penalties. These are in 2022/23 prices.

Ofwat used 2022/23 prices as the standard when setting prices, investment plans, and service commitments for the 2025 to 2030 period. Water companies then adjust these figures to reflect current prices when calculating customer bills.

Customers have told us they prefer more predictable bill changes from year to year.

Without this change, bills could go down next year before rising significantly the following year.

By spreading some of the penalties over 2 years, we can help create a smoother bill profile for customers.

This is the first time we've requested to use this specific deferral mechanism. Southern Water has previously deferred penalties using this mechanism. 

We have not made any decision regarding future deferrals.

Any future request would still be subject to separate consideration by Ofwat.

For a typical household receiving both water and wastewater services from us, bills are expected to increase by around:

• 1% in 2027/28

This figure includes all allowed revenue adjustments for the year, like inflation, cost changes, and Ofwat-agreed adjustments for the year.

Without the deferral, a typical bill could have:

• decreased by around 2% in 2027/28
• increased by around 13% in 2028/29

Spreading the adjustments over 2 years helps avoid a significant increase in customer bills.

Yes. Our proposal does not reduce the value of the adjustments. It simply spreads them across a longer period to help make bill changes more gradual and predictable.

No. The penalties still apply in full. This change only affects when they're reflected in customer bills.

No. This is an established mechanism within Ofwat's framework that allows water companies to request a deferral where it's in customers' interests. The penalties still apply in full.

No. We do not benefit financially from deferring ODI payments because deferred amounts are adjusted for inflation and the time value of money. 

Any ODI penalties remain in place and continue to reflect performance. We're simply spreading their impact over a longer period to help avoid sharper year-to-year changes in bills.