Utility Week

UTILITY WEEK | 8TH - 14TH DECEMBER 2017 | 7 Interview C athryn Ross bounds into the room with a happy smile, bursting with even more energy than usual. In the final few weeks of her tenure as Ofwat chief executive, she has plenty to do – not least, publishing the final methodology for PR19 on 13 December. But today, she's taking an hour out to reflect on her four years in post and ask, what's le to be done in the water sector? Ross joined Ofwat for her second stint at the regulator in 2013, from the Office of Rail Regulation. Come Janu- ary, she'll be making her first foray into the private sec- tor, as director of regulatory affairs at BT. The industry consensus, as companies await news of her successor, is that she leaves a job well done. While the relationship between the regulator and the sector is not always in perfect accord, it's come a long way since Ross joined, in the dark days following the Section 13 debacle that saw water companies in a public standoff with their regula- tor. The fundamental changes planned in PR14 have all but been achieved, and further change is on the horizon with the next price review. Against the odds, the busi- ness retail market was opened to competition on time, and customer bills are going down in real terms. Despite these achievements, water finds itself at the centre of a political storm, with Jeremy Corbyn's Labour party leading the charge to renationalise the sector, and the media – even the usually pro-markets Financial Times – openly questioning the legitimacy of the priva- tised companies. How did it come to this? Ross says it's been bubbling under for some time: "Although [the Labour party mani- festo commitment to renationalisation] came out of le field, actually the underlying issues have been around for a long time and I think the message is beginning to be understood, that those issues are things that companies need to take ownership of and do things about." Those underlying concerns, says Ross, are: value for money, "that's a hygiene factor"; connection with cus- tomers; and board leadership, transparency and govern- ance. Ofwat, under Ross and chairman Jonson Cox, has been banging the drum on these issues for years, and today Ross notes considerable progress. However, she warns: "These are essential public services, people think about water as a human right, so the legitimacy bar is very high, and I suspect it is probably the case that the debate around renationalisation, if anything, has set that bar a little higher still." Companies are responding, to Ross's obvious satis- faction. In the past few weeks, Thames Water, the sec- tor's outlier on many of these issues, has announced the appointment of well-respected former SSE chief execu- tive Ian Marchant as its new chairman, with a remit to review the company's governance and transparency, and shut down its offshore financial arrangements in the Cayman Islands. In a similar vein, Yorkshire Water announced in October plans to leave the Caymans, and is now setting about an ambitious programme of invest- ment aimed at boosting its performance to upper quar- tile within the next two years. Ross is pleased, reflecting: "[Companies are] not just trotting out the story about what's been achieved since privatisation, they are now tackling some of the substan- tive issues, and I think that's a good place to be. Clearly if you are for renationalisation on ideological grounds, that's not going to shi you, but if you're an advocate of renationalisation because you don't see any other means of regaining public trust and confidence in essential pub- lic services, then some of these changes – the Cayman Islands, financial resilience, building on that connection with customers – all of that stuff actually helps to address the underlying concerns." It was a different story a few weeks ago, when Ross took to the stage at Moody's annual conference, deliver- ing a message designed to be a "wake-up call to even the hardest of hearing" (her words), that companies must get their houses in order. The speech raised eyebrows across the sector and delighted the tabloids. Usually firm but fair, her tone felt different that time. Deliberately so? "The reason I was being intentionally pointy was because at that moment my concern was that the sector was perhaps too quick to use the narrative about what had been achieved since privatisation and not quick enough to spot that the debate had actually moved on and that there were some real substantive issues that need to be addressed." She acknowledges the progress made since, though is reluctant to take the credit. Ross gave another speech a few weeks later – "there'll be no more speeches!" – which made headlines for different reasons. Companies that were irked by her tub thumping the month before perhaps had even more reason to worry as she outlined a dizzying pace of change in the ten years ahead that would threaten their very business models. She explains her thinking today, her characteristic rapid-fire tones delivering well thought through argu- ments. On the one hand, she sees customer-driven change, which, as she outlined in her speech, may see the customer's "primary interface" happening with a connected homes intermediary, which "seamlessly" chooses and switches services on their behalf, according to their needs and wishes. This raises questions about, for example, the value of customer data and the poten- tial for some customers' data to be more valuable than others'. "Does society believe that it is fair for some cus- tomers to pay this price for the same service that other customers pay a different price for? Is that okay?"

• Cover