Utility Week

22 | MAY 2021 | UTILITY WEEK Policy & Regulation Interview Fletcher reflects on water Ofwat's recently departed chief executive Rachel Fletcher talks to Ruth Williams about the highs and lows of her tenure and how the water sector rebounded from what she thinks was its darkest point. I think the entire industry felt the way I did when they heard," Fletcher recalls the day enforcement against South- ern Water was announced for misreporting related to wastewater. "By the time we made that announcement the company was under new management and going through a big cultural change, but that was a low point because it was a very salutary reminder of how bad things had been in the past." At the time, Fletcher referred to water's "dark week", which she now sees as a turn- ing point for the industry embracing the opportunity to deliver greater value for soci- ety through individual company culture and purpose. Fletcher le• Ofgem for the top job at Ofwat in 2018 when Cathryn Ross moved to BT. Her experience regulating the energy sector included being senior partner for con- sumers and competition and a member of the Ofgem board. During her 13 years at Ofgem, Fletcher led the electricity price control review and introduced the Low Carbon Network Fund. In mid-April she joined Octopus Energy as director of regulation and economics as the disruptor brand grows into a large supplier. During Fletcher's time steering the Ofwat ship she championed companies moving into the space beyond being service provid- ers towards something that's not purely transactional. As employers and environ- mental stakeholders there is a major role being played within communities. "If you think about where we were three or four years ago, I don't think the industry had as much conviction about the role it plays in society nor was it as ambitious as it is now. Water UK wrote a statement of ambi- tion about the kind of industry it wants to be, and we've seen steps taken over the past few years towards that ambition." Building trust For the regulator's part there has been signif- icant work to restore public trust in the sector starting with board leadership requirements being added to company licences mandating a duty to stakeholders – not only sharehold- ers – and a responsibility to further that pur- pose through company culture. Fletcher says during the almost 12 months this has been in place it has given boards a greater focus. However, she doesn't feel that formalising public purpose into licences would necessarily be effective, because it is difficult to find a meaningful modification. "Companies are seeking to embed that broader purpose to make it more enduring rather than being reliant on personalities at the top," she says. "What's important isn't changing the licence, it's cementing a mindset in the indi- vidual companies about what they're there to do, what's important, and getting that mind- set driving all sorts of decisions from paying dividends, who do you employ, what do you look at when bringing people into the organi- sation. We're beginning to see that happen." An example of this has been the green recovery proposals made by the sector to accelerate investment to the tune of £1.3 bil- lion to add value in the economic recupera- tion following Covid-19. "It's one illustration of many that com- panies are not content anymore to just run a profitable water and waste business that's the right side of compliance. Now they're really creatively thinking about how as a water and wastewater treatment company can they add value. "When I came in at the beginning of 2018 the industry was being criticised by the sec- retary of state for its corporate behaviours and offshore financing. Now it's well on the way to embracing the public value it can cre- ate. It's hugely rewarding to see." Fletcher sees the regulator as a small cog in a large complex system and the Time to Act Together strategy, which acknowl- edges that, is a highlight of her time in the role. Since its publication in 2019 Ofwat has focused on the longer-term challenges of climate change, population growth and the wider public values the sector can create. Collaboration is key These strategic changes will be more effec- tive by working with other parts of the sys- tem, Fletcher believes, as seen in water resource management planning. "Coming from the energy sector I was looking at water and thinking how are we preparing for the future? It was clear there were big gaps in the approach. Fast-forward three years and its in a hugely stronger place due to collaboration and joint working." She says regulators and government began speaking with one voice and the indus- try response brought the energy to reform water resource planning. The formation of the Regulators Alliance for Progressing Infra- structure Development (Rapid) further exem- plified the goals of the strategy in action. "You can draw a golden thread from what we were trying to achieve with the incentives in the price review and the strategy. We've had 18 months to embed the strategy and we've got amazing work underway." The innovation fund is an example of Ofwat getting into that enabler space – to facilitate the sector to tackle some of the challenges from climate change, population growth and changing customer expecta- tions by exploring how technologies can cut through those challenges. Another change from within, Fletcher says, is Ofwat embracing the idea that only a few months since the price control closed, there's potentially more money on the table to assist the green recovery. Together with other regulators, Ofwat invited companies to bring forward future investment and acceler- ate planned work. "This is a real indication of Ofwat thinking in a different way than the Ofwat of old." The Ofwat of new will be more forward thinking in the next price review, Fletcher says, as she describes PR24 as "really mov- ing things forward". "The early stages on our thinking on PR24 includes how we get the industry to think about the next 10, 15, 20 years and how the big investments will be scheduled and "

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