Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/844956
UTILITY WEEK | 7TH - 13TH JULY 2017 | 7 People & Opinion ways in which we have invested our customers' money, and the degree to which customers, the environment and investors will each benefit. Three years ago we first published a document entitled Our Finances Explained, which has been updated annually. This was an important step towards greater transparency and we are about to complement it with Our Taxes Explained. In seeking to build on those foundations, we know that many people want to know more about the level of financial returns achieved by the company's investors. An aspect of particular interest is the the extent to which the returns achieved by different companies in the sector are determined by the financial structures that each has adopted. This is an eminently reasonable question and we will provide the relevant data openly and transparently, including a comparison between the financial flows that have taken place and those that would have been expected under Ofwat's notional capital structure. In doing this, we will invite others in the sector to work collaboratively with us. Following recent reforms of governance in the sector, instituted by Jonson Cox and the board of Ofwat, the composition of our board of directors has undergone significant change. Fully independent non-executive directors are now in the majority on the board of our regulated entity, Thames Water Utilities. As well as their independence and their ability to hold the company to account, they bring a valuable breadth and depth of experience to our decision-making and governance. They each serve for a limited term and in recruiting their successors, in due course, we will continue to seek out individuals with a strong track record of integrity, independence of thought and the ability to represent the interests of our customers. In the meantime, we will carry out an early review of board effectiveness and independence, as requested. On a personal note, I will be standing down as planned, early next year, and a successor is currently being identified. We recognise that the way in which management remuneration is determined is a matter of considerable and legitimate interest to our customers. We have sought to explain this carefully in the lengthy remuneration section of our annual reports and will continue to work with our Customer Challenge Group to present this infor- mation openly and transparently. As a concluding remark, I just want to confirm that the senior leadership of Thames Water – board members, investors and members of the executive team – accept that our responsibility is to provide the best possible service to all our customers. We have a hugely important job to do in supplying London and the Thames Valley with water and wastewater services that protect public health and are fit for purpose, resilient and good value for money. The fact that we do so as a private sector organisation, under strong regula- tion, does not change the fundamental requirement of our business, which is to provide an essential public service. It does, however, make it more important that we operate openly and transparently in every respect, to earn and maintain the trust of our customers. That is something we can and will do. Sir Peter Mason, chairman, Thames Water Utilities "The five areas where I want to see Thames improve." The challenge Jonson Cox, chairman, Ofwat In Utility Week 23 June, Ofwat chairman Jonson Cox laid down the gauntlet to Thames Water, outlining five key areas where he wanted to see significant improvement from the company. This is an edited summary of that article. W e see an urgent need for Thames Water to make a step change in the way it operates and behaves. The company has new members of the management team and new investors. The previous ultimate controller, Macquarie, has sold out to Canadian Borealis and Middle-Eastern Wren House, whom we welcome to the sector. Responsible investors can benefit from helping us drive performance up and prices down. We are asking the company, with new investors' sup- port, to adopt the following steps: • 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. • An annual audited statement from the Board, to sit in front of financial statements, focusing on how the com- pany 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. • 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 we use for assessing all companies. • A prompt review of the Board composition to ensure a standard of independence, that the Board can hold the company to delivery of its promises to customers and that the Board can win and maintain public trust. • Demonstrate that management rewards give appro- priate weight to performance for customers as well as financial performance, and explaining transparently how the performance standards have been set and assessed each year. I call on the company to adopt these five commit- ments quickly, and discuss with us how it will meet them. We may ask the same of others in the industry too, as we evolve our ground-breaking approach to reforming Board leadership in public service providers. It's a privilege for a company to hold a monopoly franchise, in perpetuity. Ofwat will always take action where necessary to protect customers and step in when necessary. We challenge companies to do the very best for the communities they serve and to provide clarity and transparency so that customers have the informa- tion they need and the service they expect. Jonson Cox, chair, Water Services Regulation Authority (Ofwat)