Utility Week

UTILITY Week 30th June 2017

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Page 25 of 31

26 | 30TH JUNE - 6TH JULY 2017 | UTILITY WEEK Customers Analysis T hames Water has been held to account. Last week, writing exclusively for Utility Week, Jonson Cox gave the com- pany a public drubbing for its long-running service failings mixed with financial and cor- porate obfuscation. He demanded that Thames make specific commitments on five key points (see box, this page) to restore regulatory and public faith in the company's ability to act in the interests of those it serves, and not just those of its investors. Cox's comments do not come out of the blue. For decades now, Thames Water has been in and out of national and industry headlines, stirring righteous indignation on account of its non-payment of corporation tax, its generous dividends to sharehold- ers and its lacklustre performance on key customer-facing metrics such as pollution, leakage and sewer flooding. Indeed, it was only in May this year that Ian Byatt, the former director general of Ofwat, reanimated public scrutiny of Thames, telling the Financial Times: "Nearly everyone on the [Thames Water] board are investors, and one cannot resist the idea that they are more concerned with money than with serving the public." He then suggested to Utility Week that the best solution to the saga of suspicion around Thames might simply be to break the company up, or convert it to a similar public interest structure to that of Welsh Water. Cox didn't go quite so far as that in his intervention, which followed close on the heels of Thames Water's annual report and a hey fine from Ofwat for falling drastically short of expectation on leakage reduction. However, if Thames cannot show quickly that it is ready and able to meet Cox's ultima- tums on board structure, corporate transpar- ency and proactive customer engagement, such steps may not be out of the question. Ofwat's chairman is not a man of endless patience and rarely has the UK political envi- ronment been so amenable to radical action in defence of customers. Thames's response to Cox's unprece- dented open challenge to its board was curt but it was not defensive. In a brief statement it said that the company was "fully aware" of Ofwat's concerns and "working hard" to address them. Contrition Utility Week's conversation with Thames's chief executive Steve Robertson aer the publication of its annual report sheds more light on this. It also communicates a higher level of contrition for past failings than the phlegmatic official response to Cox. Speaking about the direction in which he is determined to take Thames, Robertson – who took up post in September last year – pre-empted many of Ofwat's demands. He pledged more transparency and open com- munication with the media. On customer communications, he said that he has per- sonally intervened during his short tenure to drive focus and strategy into the way social media is used to interact with customers. Looking forward, he was also clear on the need to deliver a business plan for PR19 that is "transparent" in aligning the "expressed needs of customers" with intentions for investment and operational changes. The wording of the annual report lent truth to his rhetoric. The remuneration com- mittee's report outlined how the company "is reviewing all incentive structures in order to focus the leaders in the business on deliver- ing long-term sustainable improvements for customers" – as well as shareholders. Can Thames turn it round? The regulator has given Thames Water a hefty fine, a public drubbing, and ultimatums on transparency, board structure and proactive customer engagement. Jane Gray reports. Ofwat's five-point plan Jonson Cox, Ofwat's chairman, has challenged Thames Water to take swi action to deliver "a step-change in the way it operates and behaves". Specifically, he called for it to deliver the following five goals. 1. Far-reaching improvement in its communication with all the company's customers, using the right channels at the right time. Thames Water serves a diverse and vibrant community, which operates around the clock. It should be leading the way in customer communications. 2. An annual audited statement from the board to sit in front of the financial statements. That statement should focus on how the company has set its aspirations and performed for all those it serves. This will illuminate how well Thames Water is delivering for everybody who depends on its services. 3. Transparency and clarity about the financial returns to the company's investors each year. This requires a clear comparison in the annual report between the financial flows under the complex highly leveraged structure the company has chosen and what those returns would be under the more conservative structure used for assessing all companies. 4. A prompt review of the board composition. This should look to ensure a standard of independence, that the board can hold the company to its promises to customers, and that the board can win and maintain public trust. 5. Demonstrate that management rewards give appropriate weight to performance for customers as well as financial performance. It should also explain transparently how performance standards have been set and assessed each year. Thames Water was hit with the maximum penalty for missing its 2016/17 leakage reduction target by 47 million litres a day

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