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UtILItY WEEK | 14th - 20th March 2014 | 9 Interview O fwat announced on Monday that Affinity Water was one of only two companies to prequalify for "enhanced" status at PR14. The regulator set the bar high and deemed only Affinity Water and South West Water to have delivered outstandingly against its tests for outcomes, costs and affordability, and to have demon- strated robust board assurance. This is a huge achievement. The company now has until this Monday (17th) to announce how its business plan squares with the risk and reward package Ofwat put forward in January. Crucially, this will mean accepting the regulator's prescribed weighted average cost of capi- tal (Wacc) of 3.85 per cent; the number in Affinity Water's December business plan was 4.3 per cent. I interviewed chief executive Richard Bienfait before Monday's announcement and asked if a 3.85 per cent cost of capital would be acceptable. Bienfait was under- standably unwilling to be explicit at that stage, but hinted enhanced status would be an extremely valuable prize. "I can't really answer that question," he said. "But I will say we are ambitious to be enhanced." He also indicated the company wasn't viewing its business plan as a closed book: "We're reviewing our risk and reward and our Outcome Delivery Incentives (ODIs) as we speak," he confirmed. Affinity Water's ODIs as specified in December are heavily skewed to the downside. Of 13 measures to deliver four key customer outcomes, only two have positive financial reward possi- bilities: the standard Service Incentive Mechanism and a leakage measure (+1.06 per cent to -1.67 per cent), which Bienfait said reflects the strength of customer feeling on that issue (see below). He also displayed confidence in Affinity Water's credit rating in light of Ofwat's tougher reward numbers – a pertinent issue for the company, given it is 80 per cent geared following a whole business securitisation last year. "We are looking at the numbers Ofwat has pub- lished; we know our own ratios; we have our own pro- jections and we know our own rating and I don't have concern for our rating," he asserted. So what are the stand-out features of Affinity Water's outstanding business plan? Its board assurance state- ment is extensive, explicit and robust. Like many com- panies, its customer engagement programme has been deep and wide, reaching some 12,500 consumers. In par- ticular it undertook repeated willingness-to-pay research where customers could express opinion on a range of price scenarios. In the end, and despite achieving very high levels of acceptability (91 per cent) for a modest price rise, the company put forward a price cut of £5.70. This takes the average pre-inflation 2014/15 bill of £165.20 to £159.50 in 2019/20. Was the move to cut prices politically driven? Bienfait said: "We didn't feel a single pressure there, but of course we felt pressure from all our stakeholders, including our customers... The good thing about what Ofwat has aimed to do this time around is to say 'your business plan is a best and final'… We put ourselves in the shoes of having to look and scrutinise. We wanted to do the right thing and get the right balance. We think we got it right." Meanwhile, customers told Affinity Water that while they didn't want the level of service they are receiving in the current period to fall in AMP6 (even if this meant