Pdf

To help measure progress on how well we are delivering the outcomes described in our business model and adding value for all our stakeholders, we focus on a range of financial and operational KPIs, encompassing the important areas of customer service and environmental performance, as well as financial indicators. We set KPIs for the five-year regulatory period, and they remain the same as last year. Our executive bonuses and long-term incentives are closely aligned to our financial and operational performance KPIs, as highlighted in the remuneration report.

Operational KPIs

The best service to customers

Definition

Net reward/(penalty) accrued across United Utilities' 19 wholesale financial ODIs, more detail of which can be found below.

Target

End the 2015–20 regulatory period with a cumulative net ODI reward.

Performance

2017/18: £7.0 million net penalty (cumulative £2.2 million net reward)

2016/17: £6.7 million net reward

(cumulative £9.2 million net reward)

2015/16: £2.5 million net reward

Status

Linked to bonus/LTP

Bonus – direct

LTP – indirect

Definition

Ofwat-derived index based on quarterly customer satisfaction surveys, measuring the absolute and relative performance of the 18 water companies. Each company receives a score in the range of zero to five, with five being the best attainable score.

Target

To move towards the upper quartile in the medium-term.

Performance

  • Sector worst
  • Sector best

Status

Linked to bonus/LTP

Bonus – direct

LTP – direct

Definition

Ofwat-derived composite index based on the number of customer contacts, assessed by type, measuring the absolute and relative performance of the 18 water companies. Each company receives a SIM point total, where the lowest score represents the best performance.

Target

To move towards the upper quartile in the medium-term.

Performance

Status

Linked to bonus/LTP

Bonus – direct

LTP – direct

At the lowest sustainable cost

Definition

Progress to date on delivering our promises to customers within the cumulative 2015-20 wholesale totex final determination allowance.

Target

To outperform Ofwat's final determination totex allowance by £100 million over the 2015-20 regulatory period.

Performance

2015–20: Confident of outperforming the final determination allowance by £100 million over the 2015–20 regulatory period

Totex was a new measure for the 2015–20 period, hence no prior years' comparators

Status

Linked to bonus/LTP

Bonus – indirect

LTP – indirect

Definition

Progress to date on financing expenditure outperformance secured versus Ofwat's industry allowed cost of debt of 2.59 per cent real over the 2015-20 period.

Target

To beat Ofwat's industry allowed cost of debt.

Performance

2015–20: On track to beat Ofwat allowance

2010–15: Exceeded our £300 million target outperformance

Status

Linked to bonus/LTP

LTP – indirect

Definition

Cost to serve in our household retail business compared with Ofwat's revenue allowance.

Target

To minimise costs compared with Ofwat's revenue allowance.

Performance

2017/18: £9 million outperformance

2016/17: £14 million outperformance

2015/16: £10 million outperformance

Status

Linked to bonus/LTP

Bonus – indirect

LTP – indirect

In a responsible manner

Definition

Average annual water leakage from our network quantified in megalitres (Ml) per day.

Target

To meet our regulatory leakage target of 462.65 Ml per day for each year in the 2015–20 regulatory period, as set by Ofwat.

Performance

2017/18: Met target

2016/17: Met target

2015/16: Met target

2014/15: Met target

2013/14: Met target

Status

Linked to bonus/LTP

Bonus – indirect

Definition

Composite assessment produced by the Environment Agency, measuring the absolute and relative performance of the 10 water and wastewater companies across a broad range of areas, including pollution.

Target

To be a first quartile performer (i.e. at least 4th) on a consistent basis.

Performance

*2016/17 latest available assessment

Status

Linked to bonus/LTP

Bonus – indirect

Definition

Independent rating awarded using sustainability metrics covering economic, environmental, social and governance performance.

Target

To retain 'World Class' rating each year.

Performance

2017/18: 'World Class'

2016/17: 'World Class'

2015/16: 'World Class'

2014/15: 'World Class'

2013/14: 'World Class'

Status

Linked to bonus/LTIP

Note 1: Sector best and worst figures for quantitative SIM are not yet available for 2017/18

Financial KPIs

Definition

A definition of revenue is included within the 'Accounting policies'.

Performance

Status

Feeds into bonus / LTP

Bonus – indirect

LTP – indirect

Definition

The underlying operating profit measure excludes from the reported operating profit any restructuring costs and other significant non-recurring items. The group determines adjusted items consistently in the calculation of its underlying operating profit measure against a framework which considers significance by reference to profit before tax, in addition to other qualitative factors such as whether the item is deemed to be within the normal course of business, its assessed frequency of reoccurrence and its volatility which is either outside the control of management and/or not representative of the current year performance. A reconciliation is shown in the Financial performance section.

Performance

Status

Feeds into bonus / LTP

Bonus – direct

LTP – indirect

Definition

This measure deducts underlying net finance expense and underlying taxation from underlying operating profit to calculate underlying profit after tax and then divides this by the average number of shares in issuance during the year. Underlying net finance expense makes consistent adjustments to the reported net finance expense, including the stripping out of fair value movements. Underlying taxation strips out any prior year adjustments, exceptional tax or any deferred tax credits or debits arising from changes in the tax rate from reported taxation. Reconciliations to the underlying measures above are shown in the Financial performance section.

Performance

Status

Feeds into bonus / LTP

LTP – indirect

Definition

This measure divides total dividends declared by the average number of shares in issuance during the year.

Performance

Status

Feeds into bonus / LTP

LTP – direct

Definition

Group net debt (including derivatives) divided by UUW's regulatory capital value (RCV). From 2016/17 onwards this uses shadow RCV, adjusted for actual spend, whilst prior years used Ofwat's published RCV in outturn prices as per previous methodology. Our target range is 55 per cent to 65 per cent.

Performance

Status

Feeds into bonus / LTP

Note 2: For both our Operational and Financial KPIs, where we have declared external targets we assess our performance against the most recent public targets. Where there are no externally declared targets we assess our performance against our internal budget, however our internal budget is not disclosed. Green status indicates that we have achieved or are confident of achieving our target. Amber status indicates that we are close to achieving our target but there remains some work to be done. Red status indicates that we are missing our target.

Note 3: In some instances the remuneration committee has used metrics with similar names but calculation methodologies which they consider more appropriate for executive remuneration, as set out in the remuneration report.

Outcome delivery incentives (ODIs)

For the 2015–20 regulatory period, Ofwat introduced outcome delivery incentives (ODIs).

Companies undertook extensive customer engagement and challenge from customer challenge groups, and developed a set of performance commitments, or 'outcomes', along with measures, targets and incentives.

These set out the level of service that we have to deliver against a variety of measures, and any financial penalties/rewards that will be incurred if the level of service was below/above that which was set out.

There were limits on rewards and penalties (caps and collars) and neutral zones (deadbands) set as part of this, and the ODIs were challenged by and ultimately set by Ofwat as part of our final determination.

We publish information about our performance against these ODIs each year, and the rewards/penalties we have earned/incurred, in our Annual Performance Report (APR). Our APRs for each year from the start of this regulatory period can be found at unitedutilities.com/corporate/about-us/performance/annual-performance-reports-2015–2020

Our performance commitments and ODIs represent a set of tough performance targets. They are skewed to the downside, with many of our ODIs being 'penalty-only', reflecting the feedback we received from our customer engagement. Many also become tougher as we progress through this regulatory period, requiring improvements in performance year-on-year.

In seeking to manage this challenge, we have continued to focus on and implement our Systems Thinking approach and accelerated investment into the first two years of the five-year regulatory period to deliver early operational benefit and mitigate potential penalties under our ODIs.

Our ODIs for the current 2015–20 regulatory period are detailed further below. As discussed in Our way of creating value, a new set of ODIs will be set as part of the price review for the 2020–25 regulatory period, based on a new customer engagement process that is taking place and including 14 common performance commitments set out by Ofwat.

Our ODIs for the 2015–20 regulatory period

For the 2015–20 regulatory period, we have 27 ODIs, as detailed further on this page.

This includes nine financial wholesale water ODIs and 10 financial wholesale wastewater ODIs detailed below, which we include as one of our operational KPIs.

Wholesale water financial ODIs

  • Water quality events DWI category 3 or above;
  • Water Quality Service Index;
  • Average minutes supply lost per property (a year);
  • Reliable water service index;
  • Security of supply index;
  • Total leakage at or below target;
  • Resilience of impounding reservoirs;
  • Thirlmere transfer into West Cumbria – the reward / penalty for this ODI is only incurred in the final year of this regulatory period, 2019/20; and
  • Contribution to rivers improved – water programme.

Wholesale wastewater financial ODIs

  • Private sewers service index;
  • Wastewater network performance index;
  • Sewer flooding index;
  • Contribution to bathing waters improved (includes NEP phase 3&4 bathing water intermittent discharge projects);
  • Protecting rivers from deterioration due to population growth (includes Davyhulme non-delivery penalty);
  • Maintaining our wastewater treatment works (includes Oldham and Royton WwTWs special cost factor claims);
  • Contribution to rivers improved – wastewater programme (includes Oldham, Royton and Windermere);
  • Wastewater serious (category 1 and 2) pollution incidents;
  • Wastewater category 3 pollution incidents; and
  • Satisfactory sludge disposal.

It also includes three non-financial wholesale water ODIs, one non-financial wholesale wastewater ODI, two financial retail ODIs and two non-financial retail ODIs, which are detailed below.

Wholesale water non-financial ODIs

  • Drinking Water Safety Plan risk score;
  • Delivering our commitments to developers, local authorities and highway authorities; and
  • Number of free water meters installed.

Wholesale wastewater non-financial ODI

  • Future flood risk.

Retail financial ODIs

  • Service incentive mechanism (SIM); and
  • Customer experience programme.

Retail non-financial ODIs

  • Customers saying that we offer value for money; and
  • Per household consumption.

Ten of our financial ODIs are penalty-only, being nine wholesale financial ODIs and one of our retail financial ODIs, with the remaining 11 being reward or penalty dependent on the level of performance.

Our performance to date on wholesale financial ODIs

We have earned a cumulative net reward across the first three years of this regulatory period of £2.2 million.

This represents a strong performance, particularly given that our ODI composite is skewed to the downside with many being penalty-only, and some that can be subject to large impacts from one-off events.

Our performance has been helped by our Systems Thinking approach and the planned acceleration of our capital investment programme into the earlier years of this regulatory period.

We have gradually improved our ODI target guidance as we progress through the regulatory period, reflecting the success of our approach at managing and mitigating the downside risk.

Many of our ODIs get progressively tougher, however we have one ODI that does not earn/incur a reward/penalty until the final year of the period, 2019/20, in relation to the Thirlmere transfer into West Cumbria, and we feel confident that we are delivering well against this project.

All our ODIs are end of period ODIs. The actual values for the first three years of the 2015-20 period, plus the anticipated values for the final two years, will be used to determine a five-year impact for each ODI. The water and wastewater service ODIs will then be aggregated to determine a single five-year total for each service. If this value is positive then this reward will be added to the opening regulatory capital value (RCV) for the 2020-25 regulatory period. If the value is negative then this penalty will be removed from the total required revenue for the 2020-25 regulatory period.

All adjustments to revenue or RCV will be made through the 2020-25 regulatory review process (PR19), with our anticipated outturn position and proposed adjustments due to be provided to Ofwat in July 2018.